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India’s Rupee Advances on Speculation Exporters Sold Dollars

India’s rupee strengthened, after fluctuating through the day, on speculation exporters sold dollars to benefit from the best exchange rate in more than five weeks.

The currency had earlier dropped as the central bank maintained its key policy rate to fight price pressures, while lowering lenders’ reserve requirements to revive growth. The monetary authority also lowered its economic growth estimate for the year through March 2013 to 5.8 percent from 6.8 percent and lifted the inflation forecast to 7.5 percent from 7 percent.

“We saw some dollar sales towards the end of the session,” said Naveen Raghuvanshi, a trader at Development Credit Bank Ltd. in Mumbai. “The monetary policy review was on expected lines, and now we have to see what steps the government takes to attract flows.”

The rupee rose 0.2 percent to 53.9675 per dollar in Mumbai, according to data compiled by Bloomberg. The currency touched 54.1975 earlier, the weakest since Sept. 21. One-month implied volatility, a gauge of exchange-rate swings used to price options, rose 10 basis points, or 0.10 percentage point, to 10.20 percent.

Governor Duvvuri Subbarao reduced the cash reserve ratio to 4.25 percent from 4.5 percent, the Reserve Bank of India said in Mumbai today. The cut to a 36-year low, the fourth this year, was predicted by 19 of 33 analysts in a Bloomberg News survey, while four forecast 4 percent and the rest no change.

“Such an outcome is in line with consensus, but there was a strong minority expecting a cut in the repurchase rate, so its lack should hit the rupee,” said Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong. “Growth will take longer to rebound with high rates.”

Three-month onshore rupee forwards were at 54.92 per dollar compared with 54.88 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were unchanged at 54.89. 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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