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India Rupee Snaps Nine-Week Decline on Steps to Curb Speculation

India’s rupee completed its first weekly gain since May, rebounding from a record low as policy makers took steps to curb speculation and boost dollar supply.

The rupee snapped the longest run of weekly declines in more than a year after the Federal Reserve and Bank of Japan indicated this week they will maintain stimulus that fueled inflows into emerging markets. Indian regulators this week reined in derivatives trading and the central bank extended easier rules for overseas loans until September, after the rupee plunged to an unprecedented 61.2125 per dollar on July 8.

The rupee strengthened 1 percent this week to 59.6300 per dollar in Mumbai, the first advance since the five days through May 3, according to prices from local banks compiled by Bloomberg. The currency rose 0.1 percent today. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 27 basis points, or 0.27 percentage point, this week to 12.54 percent.

“To us, speculative activity is not the problem,” analysts at Brown Brothers Harriman & Co., including New York-based Marc Chandler, wrote in a research report yesterday. “Twin deficits, high inflation, and sluggish growth all argue for continued rupee weakness. We fully expect more measures designed to help slow the move.”

India’s current-account deficit widened to a record 4.8 percent of gross domestic product in the year ended March 31, official data show, and the government aims to narrow the budget gap to 4.8 percent in the current fiscal year from 4.9 percent in the previous period. The rupee’s 7.8 percent decline this year kept the central bank from adding to its three interest-rate cuts even as growth slowed to a decade-low.

Policy Steps

India is considering selling sovereign bonds abroad for the first time as policy makers weigh measures to help stem rupee declines, two officials with direct knowledge of the matter said.

Companies can continue to pay higher interest rates until the end of September to borrow from overseas, the Reserve Bank of India said in a statement yesterday. The ceiling for such loans had been raised in March 2012 for an initial period of six months.

The RBI may lower banks’ net open position limits, according to a person with knowledge of the matter, who asked not to be named as the information is confidential. The authority barred lenders from proprietary trading in currency futures and exchange-traded options, according to a July 8 statement on its website. The Securities and Exchange Board of India said separately it will raise margin requirements and cap open positions in such contracts.

Forwards Gain

The RBI also asked India’s oil refiners, the largest buyers of foreign currency, to purchase dollars only from the State Bank of India, the nation’s biggest lender, CNBC-TV18 television channel reported July 9, citing people it didn’t identify.

India’s trade deficit narrowed to $12.2 billion in June from $20.1 billion in May as gold and silver imports fell to $2.45 billion from $8.39 billion, official data showed today.

Consumer prices rose 9.3 percent last month, little changed from May, according to the median of 21 estimates in a Bloomberg survey before data due at 5.30 p.m. in new Delhi today. Wholesale price-inflation probably quickened to 4.94 percent from a 43-month low of 4.7 percent, a separate survey shows before data scheduled for July 15.

Three-month onshore rupee forwards rose 0.9 percent to 60.86 per dollar this week, data compiled by Bloomberg show. Offshore non-deliverable contracts gained 1.8 percent to 61.05. 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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