India’s rupee forwards extended a rebound from a two-month low on speculation policy makers in the U.S. and Japan will maintain economic stimulus policies that have boosted capital flows into emerging markets.
The currency gained for a second day as India scrapped a proposal to tighten rules for overseas investors seeking to benefit from double taxation treaties. The Bank of Japan must expand its monetary base and buy bonds with maturities of more than five years, Kikuo Iwata, a government nominee for deputy governor, said in a parliament hearing today. Federal Reserve Vice Chairman Janet Yellen said yesterday the U.S. central bank should press on with $85 billion in monthly debt buying while tracking possible costs and risks from the program.
“The rupee’s gains are mostly driven by global sentiment,” said Vikas Babu, a trader in Mumbai at state-run Andhra Bank. “The tax clarifications helped equities, which supported the rupee. However the positivity will not last long as importers will jump in to buy dollars.”
Three-month onshore rupee forwards advanced 0.2 percent to 55.89 per dollar in Mumbai, according to data compiled by Bloombberg. The contracts had dropped to 56.20 yesterday, the lowest level since Jan. 8. Offshore non-deliverable contracts were at 55.90 versus 55.99. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
The rupee ended at 54.9250 per dollar in the spot market, compared with 54.8650 yesterday, according to data compiled by Bloomberg. It had risen as much as 0.5 percent earlier, with gains limited by importers’ purchases of dollars, according to Andhra Bank.
One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 20 basis points, or 0.20 percentage point, to 9.81 percent.