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Rupee Rises to 5-Month High as Singh Policy Push Boosts Inflows

Sept. 27 (Bloomberg) -- India’s rupee rose to the highest level since May as Prime Minister Manmohan Singh’s measures to curb the budget deficit and attract investment lured foreigners to the nation’s assets.

Overseas funds plowed $2.8 billion into local stocks since Sept. 13, the day the government announced it was cutting fuel subsidies, exchange data show. The benchmark 30-stock BSE India Sensitive Index rose 3.1 percent in the period and foreigners bought $196 million of rupee-denominated debt. Policy makers are unlikely to curb the rupee’s gains, according to Brown Brothers Harriman & Co.

The rupee “offers greater prospects for capital appreciation should the rally in equity markets continue,” analysts at Brown Brothers, including New York-based chief currency strategist Marc Chandler, wrote in a report to clients today. In Asia, the currency is probably one of the “best prospects for carry trades,” they wrote.

The rupee advanced 0.9 percent to 53.0275 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 53.0050 earlier, the strongest level since May 10, and has gained 4.8 percent in September. One-month implied volatility, a measure of exchange-rate swings used to price options, fell 40 basis points, or 0.40 percentage point, to 10.90 percent.

The rupee is Asia’s best-performing currency this quarter, strengthening 5 percent against the dollar. It lost 8.6 percent in the three months ended June.

India’s finance ministry reduced a tax on local companies’ overseas borrowing to 5 percent from 20 percent on Sept. 21. In a television speech to the nation the same day, Singh vowed to introduce more policy changes after cutting fuel subsidies and opening up retail and aviation industries to foreigners.

Three-month onshore rupee forwards were at 54.19 a dollar, compared with 54.46 yesterday, and offshore non-deliverable contracts were at 53.90 from 54.14. 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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