India’s rupee rose, reversing earlier losses, on speculation exporters sold their overseas earnings after the currency dropped to a one-month low. Government bonds were little changed.
India will auction 666.69 billion rupees ($12.3 billion) of permits to enable foreign investors to buy Indian bonds on Feb. 20, according to a notice on Securities and Exchange Board of India website. The rupee has lost 0.7 percent against the dollar since Feb. 13, after official data showed the trade deficit widened to $20 billion in January, close to October’s all-time high of $21.9 billion.
“Exporters were probably selling dollars as the rupee has weakened a bit recently due to trade deficit concerns,” said Vikas Babu, a currency trader at state-owned Andhra Bank in Mumbai. “The sale of debt quotas should help attract foreign inflows and support the local currency.”
The rupee rose 0.1 percent to 54.20 per dollar in Mumbai, according to data compiled by Bloomberg. The currency touched 54.4450 earlier, the weakest level since Jan. 17. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 20 basis points, or 0.2 percentage point, to 9.25 percent.
Bond and rupee markets will be shut in Mumbai tomorrow for a local holiday.
Asia’s third-largest economy will expand 5 percent in the fiscal year ending March 31, compared with 6.2 percent in the prior 12 months, the Central Statistical Office said Feb. 7. Wholesale prices rose 6.62 percent last month from a year earlier, official data showed last week, the slowest pace since November 2009.
Central bank Governor Duvvuri Subbarao said Feb. 16 inflation risks will limit the extent he can reduce interest rates to bolster an economy forecast to expand at the weakest pace in a decade.
“Subbarao expressed hope that growth has bottomed out and confirmed rate cut room but also said that it was limited,” Credit Agricole CIB analysts, including Hong Kong-based Mitul Kotecha wrote in a research note today. “Overall, the comments should be rupee positive and we believe that the recent correction of the currency may well be coming to an end.”
The Reserve Bank of India cut the benchmark repurchase rate by 25 basis points to 7.75 percent last month, the first reduction since April 2012.
The yield on the 8.15 percent bonds due June 2022 was little changed at 7.83 percent, according to the central bank’s trading system.
Three-month onshore rupee forwards traded at 55.32 per dollar, compared with 55.20 on Feb. 15, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.21 versus 55.09. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.