India’s rupee rose from the lowest level in a week as inflows ahead of the end of the quarter offset importers’ demand for the dollar.
The flows were bunched because of holidays yesterday and tomorrow, according to Andhra Bank. India’s financial year ends March 31. The shortfall in the current account, the broadest measure of trade, rose to a record $32.6 billion in the three months through December from the previous quarter’s $22.6 billion, the Reserve Bank of India said in a statement after the market had shut.
“The current-account concerns are still persisting,” said Vikas Babu, a trader at the state-run lender in Mumbai. “With today effectively being the last trading day for the rupee this fiscal year, and with little or no trade globally on April 1,” there were inflows today, he said.
The rupee advanced 0.2 percent from March 26 to 54.2800 per dollar in Mumbai, according to data compiled by Bloomberg. It earlier declined as much as 0.2 percent to 54.4650, the lowest level since March 20. The currency has strengthened 0.1 percent this week and month, and 1.3 percent this quarter, paring its drop in the past year to 6.6 percent.
One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell three basis points, or 0.03 percentage point, to 7.96 percent. The rate has dropped 178 basis points since March 31, 2012. The rupee’s volatility seems “too low,” considering increased risks that Europe’s debt crisis could damp inflows, Sean Yokota, head of Asia strategy at Skandinaviska Enskilda Banken AB, wrote in a March 27 report.
The yield on the 8.15 percent bonds due June 2022 fell 4 basis points to 7.95 percent today, according to the central bank’s trading system. The rate on the benchmark 10-year note, which has dropped 56 basis points in the past year, was little changed this week and rose 8 basis points this month after the central bank on March 19 lowered interest rates for the second time in 2013 and said room for more easing is “quite limited.”
The debt sell-off “is overdone,” according to Barclays Plc, which on March 26 recommended buying the benchmark note and targeting a drop in yield to 7.40 percent by the end of September. The rupee will be relatively stable, ending 2013 at 55, according to the U.K. bank, which says investors should refrain from hedging positions.
All restrictions and sub-limits governing foreign funds’ purchases of Indian government and corporate notes will be removed from April 1, while keeping the overall cap at $25 billion for sovereign debt and $51 billion for securities issued by companies, Finance Minister Palaniappan Chidambaram said in New Delhi on March 23. A new “on tap” system will replace the existing quota auction procedure, he said.
The move comes as the government estimates India will need more than $75 billion of foreign capital the next financial year to fund the current-account shortfall. The gap is a “greater worry” than the budget deficit, Chidambaram said Feb. 28. India’s external debt rose 8.9 percent from March 2012 to $376.3 billion at the end of December, or 20.6 percent of gross domestic product, a government report showed today.
Three-month onshore rupee forwards traded at 55.33 per dollar, compared with 55.36 on March 26, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.34 versus 55.41 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.