India Rupee Rises to 1-Week High on Europe Stimulus Speculation

India’s rupee climbed to a one-week high on speculation European policy makers will take further steps to contain their region’s debt crisis, spurring demand for riskier assets.

The currency rose for a second day after Le Monde reported, without citing anyone, that the European Central Bank is preparing to buy debt in the secondary market in the coming weeks to be followed by primary-market purchases by government-financed bailout funds. The rupee may extend gains once Prime Minister Manmohan Singh announces the details of a plan to revive the economy and spur capital inflows, according to Federal Bank Ltd.

“The market is getting impatient as to the timing of the government’s growth-supporting measures and the uncertain situation in Europe is not helping,” said Ravi Ranjit, chief manager at Federal Bank in Mumbai. “If such measures are announced in India and at the same time we have concrete news of beneficial developments in Europe, the rupee will strengthen significantly.”

The rupee rose 0.3 percent to 55.3425 per dollar in Mumbai, according to data compiled by Bloomberg. That compares with

55.3275 at the end of last week. The currency touched 55.3075 earlier today, the strongest level since July 20. One-month implied volatility, a measure of exchange-rate swings used to price options, decreased 20 basis points, or 0.20 percentage point, to 11.50 percent.

Awaiting Stimulus

The rupee extended yesterday’s biggest gain in two weeks as French President Francois Hollande told reporters at a Valeo SA factory near Paris that he and German Chancellor Angela Merkel planned to discuss help for Spain and implementing a June agreement to protect governments against unsustainable borrowing costs. European Central Bank President Mario Draghi yesterday signaled officials are prepared to do whatever is needed to preserve the euro.

Policy makers from the U.S. Federal Reserve, the ECB and the Bank of England all meet next week, before the fifth anniversary of the financial crisis in August. The Reserve Bank of India, which also reviews policy on July 31, will hold its repurchase rate at 8 percent, according to 27 of 28 analysts in a Bloomberg News survey. One predicts a 25 basis point cut.

Governor Duvvuri Subbarao on July 16 said inflation, which measured 7.25 percent last month, is “way above” the monetary authority’s threshold of around 5 percent. Gross domestic product grew 5.3 percent in the first quarter of this year, the slowest pace since 2003.

Three-month onshore rupee forwards traded at 56.41 per dollar, compared with 56.75 yesterday, and offshore non-deliverable contracts were at 56.28 from 56.74. 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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