India’s rupee rose the most in almost two weeks on speculation the central bank and government will make policy adjustments that spur growth and attract funds to Asia’s third-largest economy.
The focus of monetary policy has to increasingly shift toward growth “from this point onwards,” the Reserve Bank of India said yesterday in a statement as Governor Duvvuri Subbarao kept borrowing costs unchanged. The lower house of India’s parliament approved changes yesterday to banking laws that may spur expansion in the industry.
“There are expectations of a rate cut in January and the government’s reform agenda is, so far, way beyond the market’s expectations,” said Vikas Babu, a trader at state-run Andhra Bank in Mumbai. “This is likely to boost inflows into equities and support the rupee.”
The currency advanced 0.5 percent to 54.5575 per dollar in Mumbai, the biggest gain since Dec. 6, according to data compiled by Bloomberg. The currency has fallen 2.7 percent this year after plunging 16 percent in 2011. One-month implied volatility, a gauge of expected moves in exchange rates used to price options, was unchanged at 10.20 percent.
The BSE India Sensitive Index of shares rose 0.6 percent today as data showed foreign investors poured $2.4 billion into the nation’s stocks this month through Dec. 17. Global funds should look to buy the right to purchase rupee-denominated debt, Barclays Plc recommended in a note to clients today, before an auction of permits tomorrow.
Three-month onshore rupee forwards traded at 55.50 per dollar compared with 55.85 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.42 versus 55.78. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.