Indian Rupee Volatility Falls a Seventh Day as Trade Gap Narrows

Volatility in India’s rupee declined for a seventh day after a government report showed the trade deficit narrowed last month.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 31 basis points, or 0.31 percentage point, to 8.72 percent in Mumbai, data compiled by Bloomberg show. It touched 8.71 percent earlier, the lowest level since Jan. 27. The rupee advanced 0.4 percent to 62.2175 per dollar in the spot market, according to prices from local banks compiled by Bloomberg.

The trade shortfall shrank to $9.92 billion from $10.1 billion in December. Exports rose 3.8 percent and imports fell 18 percent. Reports due tomorrow may show consumer-price gains and a contraction in industrial production slowed, according to Bloomberg surveys of economists.

“We expect India’s trade deficit to remain manageable in the coming months,” analysts at Barclays Plc, including Rahul Bajoria in Singapore, wrote in a research report issued after today’s data. “We now see significant risks that the current-account deficit in the year through March will be lower than our forecast of $48 billion.”

Federal Reserve Chairman Janet Yellen delivers her first semi-annual monetary-policy testimony today as investors weigh the pace of stimulus reductions against data this week that may show U.S. retail sales stalled while jobless claims declined.

India’s industrial production contracted 1.1 percent in December from a year earlier, after shrinking 2.1 percent in the previous month, according to the median of 38 estimates in a Bloomberg survey before tomorrow’s data. The CPI report will show prices rose 9.20 percent in January, compared with 9.87 percent in December, a separate poll showed.

Three-month offshore non-deliverable forwards rose 0.1 percent to 63.48 per dollar, data compiled by Bloomberg show. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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