India’s rupee gained the most in three weeks as Prime Minister Manmohan Singh said reviving investor confidence in the nation is one of his top priorities after taking charge of the finance ministry.
The currency was also supported by bigger-than-expected gains in U.S. housing and durable-goods orders, boosting confidence in global growth. Those signs of resilience outweighed concern that a two-day summit that starts today in Brussels to tackle Europe’s debt crisis won’t yield results after German Chancellor Angela Merkel hardened her position against joint euro bonds.
We are awaiting “further clarity on immediate Reserve Bank of India and government moves, as well as developments in the euro area,” analysts at Goldman Sachs Group Inc., including Mumbai-based Tushar Poddar, wrote in a report today. “We remain positive on the rupee on a medium-term basis.”
The rupee advanced 0.6 percent to 56.8075 per dollar in Mumbai, according to data compiled by Bloomberg, the biggest gain since June 7. The currency has dropped 10.4 percent this quarter, the worst performance since the three months through September 1991, and has declined 6.6 percent this year. It touched 57.3275 on June 22, the weakest level on record. While the rupee may fall further in the “near term”, it will strengthen to 50 in a year, according to Goldman Sachs.
One-month implied volatility, a measure of exchange-rate swings used to price options, fell 30 basis points, or 0.30 percentage point, to 11.80 percent.
“At the current juncture, we are passing through challenging times economically,” Singh said in a statement in New Delhi yesterday. “We need to work to get the economy going again and restart the India growth story. In the short run, we need to revive investor sentiment, both domestic and international.” Singh assumed the finance role on June 26 after Pranab Mukherjee resigned to contest presidential elections.
Downside risks to India’s growth are “likely to persist,” the central bank said in its Financial Stability Report for September to March, published today. The monetary authority cited risk aversion, the budget deficit, current-account shortfall and food inflation as some of the threats faced by the country.
“There is speculation that the government will now announce strong measures to support the economy and currency,” said Kamlakar Rao, head of foreign exchange trading at state-run Allahabad Bank in Mumbai. “We saw exporters selling dollars near the close of trading hours on the view that 57 may be the best price they can get.”
Three-month onshore currency forwards traded at 57.99 per dollar, compared with 58.23 yesterday, and offshore non-deliverable contracts were at 58.13 from 58.29. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.