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Rupee Advances as Parliament Debates Foreign Investment Policy

India’s rupee strengthened, erasing earlier losses, on optimism the government will be able to push through its plan to allow more foreign investment.

India’s parliament started discussing today a decision to allow foreign companies to open supermarkets in the country. The debate in the lower house began at 2 p.m. local time, while voting will take place tomorrow. U.S. House Republicans rejected President Barack Obama’s demand for higher taxes, heightening the confrontational tone of negotiations that are seeking to avoid the so-called fiscal cliff of $607 billion of tax increases and spending cuts set to take effect in January.

The rupee “would need strong political consensus on reforms and the Reserve Bank of India’s growth-supportive monetary policy to get into bullish mode,” said J. Moses Harding, executive vice president at IndusInd Bank Ltd. in Mumbai.

The rupee advanced 0.2 percent to 54.6850 per dollar in Mumbai, after earlier dropping as much as 0.4 percent, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in exchange-rates used to price options, was unchanged at 10 percent.

India’s economy expanded 5.3 percent in the three months through September from a year earlier, matching the pace in the first quarter that was the slowest since 2009, official data showed Nov. 30. The RBI has kept its benchmark repurchase rate at 8 percent since April, citing price pressures. The monetary authority is next scheduled to review policy on Dec. 18.

Three-month onshore rupee forwards traded at 55.51 per dollar, compared with 55.50 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.44 versus 55.48. 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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