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

Oct. 1 (Bloomberg) -- India’s rupee climbed to the highest level in more than five months as Prime Minister Manmohan Singh’s measures to attract investments lured foreigners to the nation’s assets.

The currency advanced for a third day as the BSE India Sensitive Index of shares closed at a 14-month high. Global funds added $3.6 billion to holdings of the nation’s stocks last month through Sept. 27, the biggest inflow since February, data from the market regulator show. The government will consider easing investment rules for insurance companies, Finance Minister Palaniappan Chidambaram said today.

“The bias is towards rupee strengthening, especially if new measures are announced,” said Vikas Babu, a trader at the state-run Andhra Bank in Mumbai. “We’re seeing some inflows.”

The rupee advanced 0.9 percent to 52.3950 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 52.39 earlier, the strongest level since April 23. The currency rose 5.3 percent in the three months through September, its strongest quarterly gain since 2009 and the best performance in Asia. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 11.40 percent.

The rupee had weakened earlier today on concerns about the outlook for exports amid signs global growth is weakening. Chinese factory output contracted for a second month in September and big Japanese manufacturers became more pessimistic in the last quarter, according to official surveys published today.

Trade Deficit

A government report today showed India’s trade deficit widened to $15.6 billion in August from a $10.3 billion gap the previous month. The shortfall in the current account was $16.4 billion in the three months through June 30, compared with a $21.7 billion deficit the previous quarter, the central bank said Sept. 28. The median of 16 estimates in a Bloomberg News survey was for a $14.2 billion gap.

The narrowing in the current-account deficit was “primarily due to lower gold imports,” economists at Barclays Plc, including Mumbai-based Siddhartha Sanyal, wrote in a research report today. “Near-term movements in the rupee will continue to be influenced heavily by news and domestic policy and political developments.”

The rupee has rebounded 9.4 percent from a record low of 57.3275 per dollar touched June 22, after Prime Minister Singh last month cut fuel subsidies, opened retailing and airlines to foreigners, and reduced a tax on local companies’ overseas borrowing to 5 percent from 20 percent.

The yield on the 8.15 percent notes due June 2022 rose one basis point, or 0.01 percentage point, to 8.16 percent, according to the central bank’s trading system. The rate fell three basis points, or 0.03 percentage point, last quarter.

Three-month onshore rupee forwards were at 53.58 a dollar, compared with 53.59 on Sept. 28, and offshore non-deliverable contracts were at 53.31 from 53.43. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

The currency and bond markets are shut tomorrow for a local holiday.

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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