India’s rupee rose for a second day on optimism the central bank will succeed in its efforts to boost the local supply of dollars.
The Reserve Bank of India, which earlier this month allowed commercial lenders to double their overseas borrowings to 100 percent of core capital, yesterday cut the minimum maturity for such loans to one year from three years, according to a statement on its website after the market shut. The banks can then swap this money with the RBI at concessional rates until Nov. 30, a step Governor Raghuram Rajan announced Sept. 4.
The rupee gained 0.6 percent to 62.08 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. The exchange rate has rebounded 5.8 percent this month, the best performance among Asia’s 11 most-traded currencies, paring its loss this year to 11.4 percent.
“The strength in the rupee is more due to the promises and assurances of the RBI,” said Paresh Nayar, head of currency and money markets at FirstRand Ltd. in Mumbai. “There is confidence now that the central bank is building up its reserves and that the authority will be there for investors in the case of any undesired speculation.”
Rajan raised the overseas borrowing limit and announced the swap facility in his first speech as governor on Sept. 4, vowing to sustain confidence in the value of the rupee. He then unexpectedly boosted the central bank’s benchmark repurchase rate to 7.5 percent from 7.25 percent at a review on Sept. 20.
Global funds bought a net $2 billion of Indian stocks this month, exchange data show, partly spurred by the Federal Reserve’s decision on Sept. 18 to maintain its pace of bond purchases. The RBI’s foreign-exchange reserves rose by $545 million to $275.4 billion in the week through Sept. 13, the latest official data show, snapping three weeks of declines.
The rupee will trade between 59 and 60 per dollar in the medium term, according to ICICI Bank Ltd. Policy uncertainty before elections due by May and possible Fed tapering will determine the currency’s trajectory, Samir Tripathi, a Mumbai-based analyst, wrote in a research report yesterday.
“There are suggestions that foreign institutional investors love Rajan,” said FirstRand’s Nayar. “Maybe that’s true.”
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 103 basis points, or 1.03 percentage point, to 15.49 percent.
One-month onshore rupee forwards rose 0.7 percent to 62.63 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts gained 0.6 percent to 62.71. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.