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Indian Rupee Rises Most in 2 Weeks on Europe Stimulus Optimism

India’s rupee strengthened the most in two weeks, erasing earlier losses, on speculation European Central Bank officials will today confirm measures to contain their region’s debt crisis.

ECB President Mario Draghi favors unlimited purchases of government debt that will be sterilized to assuage concerns about printing money, two central bank officials briefed on the plan said. Draghi will speak at a press briefing after the ECB’s Governing Council decides on interest rates and his plan that aims to lower borrowing costs in indebted countries and prevent a breakup of the euro. The rupee fell earlier on speculation importers stepped up dollar purchases.

“The market has priced in, by various degrees, policy support” from the ECB, Andy Ji, a Singapore-based foreign-exchange strategist at Commonwealth Bank of Australia, said in an e-mail. “The rupee could get a small lift but the contentious issue remains domestic conditions, namely growth and inflation outlook.”

The rupee advanced 0.5 percent to 55.6500 per dollar in Mumbai, the biggest increase since Aug. 23, according to data compiled by Bloomberg. It touched 56.0350 earlier, the weakest level since Aug. 16. One-month implied volatility, a measure of exchange-rate swings used to price options, fell 10 basis points, or 0.10 percentage point, to 9.40 percent, the lowest level since May 2.

India’s gross domestic product increased 5.5 percent last quarter, a government report showed Aug. 31. That compares with a 5.3 percent gain in the previous three months, which was the slowest pace since March 2009. Reserve Bank of India Governor Duvvuri Subbarao said on Aug. 28 that policy makers need to reduce the nation’s inflation rate by about 2 percentage points, underscoring limited scope to address weakening growth through interest-rate cuts.

Three-month onshore rupee forwards were at 56.70 per dollar, compared with 56.85 yesterday, and offshore non-deliverable contracts were at 56.72 from 56.86. 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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