Rupee Snaps Three-Day Loss as Global Stimulus May Boost Inflows

India’s rupee snapped a three-day losing streak on optimism monetary easing by global central banks will boost inflows into higher-yielding emerging markets. Bonds advanced.

The Reserve Bank of Australia today lowered its main rate by a quarter percentage point to 2.75 percent, a day after European Central Bank President Mario Draghi said further cuts in rates are possible after reducing them to an all-time low last week. German factory orders unexpectedly increased. The rupee had weakened earlier as central bank Governor Duvvuri Subbarao said on May 4 that the odds of further monetary easing to spur growth are “practically non-existent.”

“Continued monetary accommodation by major central banks is supportive of robust capital inflows,” analysts at ICICI Bank Ltd., including Mumbai-based Sunandan Chaudhuri, wrote in a report today. “The cautious policy stance of the RBI” has been among concerns that have capped the rupee’s gains, they wrote.

The rupee advanced 0.1 percent to 54.1450 per dollar in Mumbai, after earlier dropping as much as 0.3 percent, according to data compiled by Bloomberg. 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 8.55 percent.

Foreigners bought a net $497 million of Indian shares in the first three days of this month, exchange data show, after adding $1.2 billion to holdings in April, the least since June 2012.

The Reserve Bank of India lowered its repurchase rate to 7.25 percent from 7.5 percent last week, taking this year’s reduction to 75 basis points, or 0.75 percentage point.

Rate Outlook

“The baseline case is that the possibility of easing is practically non-existent,” Subbarao said in the Bloomberg TV interview. Any expectation that the outlook is for “another salvo” of loosening is “inaccurate,” he said, adding inflation and the current-account gap will determine future policy changes.

The current-account gap probably widened to an all-time high of around 5 percent of gross domestic product in the fiscal year ended March 31, the governor said in a conference call with analysts yesterday, adding that the deficit is expected to shrink in the current period.

The RBI bought 96.6 billion ($1.8 billion) of debt due in 2017, 2024, 2025 and 2032 today, the monetary authority said in an e-mailed statement.

The yield on the 8.15 percent bonds due June 2022 dropped to 7.74 percent from 7.75 percent yesterday in Mumbai, according to the central bank’s trading system.

Three-month onshore rupee forwards traded at 55.14 per dollar, compared with 55.19 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 54.78 versus 54.90. 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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