India’s Rupee Advances Most in Two Weeks on Stimulus Speculation

India’s rupee strengthened the most in almost two weeks on speculation the central bank will join policy makers worldwide in taking steps to spur growth.

The Reserve Bank of India may lower interest rates by 50 basis points at a review on July 31, according to Citigroup Inc. The RBI kept borrowing costs unchanged last month after reducing them in April for the first time since 2009. A government report yesterday showed industrial output rose 2.4 percent in May, less than an average 5.1 percent in the previous two years. China’s economy expanded 7.6 percent last quarter, the least in three years, official data showed today.

“We believe the rupee has overshot and that positive changes are starting to occur,” said Gaurav Garg, a strategist at Citigroup in Singapore. In the short term, the rupee is “our most-favored currency in Asia,” he said.

The rupee advanced 1.4 percent to 55.1450 per dollar in Mumbai, the biggest gain since July 3, according to data compiled by Bloomberg. That led to a gain of 0.6 percent this week, erasing earlier losses. The currency will rise to 54 in the coming weeks, Garg predicted. One-month implied volatility, a measure of exchange-rate swings used to price options, fell 15 basis points, or 0.15 percentage point, to 11.85 percent.

The Asian Development Bank cut its growth forecast for the region yesterday and South Korea unexpectedly reduced interest rates as it joined countries from Brazil to China in easing monetary policy in July. Asia excluding Japan will expand 6.6 percent this year, compared with an April estimate of 6.9 percent, ADB President Haruhiko Kuroda said in Bangkok yesterday.

Three-month onshore rupee forwards traded at 56.12 per dollar, compared with 56.82 yesterday, and offshore non-deliverable contracts were at 56.06 from 56.82. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

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