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India Rupee Volatility Falls to Three-Month Low on Stock Inflows

Volatility in India’s rupee fell to the lowest in three months as foreign funds boosted purchases of the nation’s stocks after the U.S. maintained its stimulus.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, declined 23 basis points, or 0.23 percentage point, to 11.59 percent in Mumbai, according to data compiled by Bloomberg. The rate is the lowest since July 26.

Global funds bought a net $1.9 billion of shares this month, exchange data show, and the S&P BSE Sensex Index today surpassed its record close before ending 0.2 percent weaker. The Federal Reserve will wait until March before easing the pace of asset purchases, according to the median estimate in an Oct. 17-18 Bloomberg survey. India’s goal of containing its current-account shortfall at 3.7 percent of gross domestic product in the year through March is still more than the 2.5 percent the central bank considers sustainable.

“The drop in volatility is due to the delay in U.S. tapering, which has boosted global liquidity and stabilized the spot rupee a bit,” said Andy Ji, a foreign-exchange strategist at Commonwealth Bank of Australia in Singapore. “The tapering will eventually start, and when this happens the rupee will weaken again due to the still-large current-account deficit.”

The rupee gained 0.2 percent to 61.47 per dollar in the spot market, according to prices from local banks compiled by Bloomberg. The currency has rebounded 12 percent from a record low of 68.845 touched Aug. 28.

The Bloomberg Dollar Index, which tracks the greenback against 10 major counterparts, has fallen 1.9 percent since Sept. 17, the day before the Fed decided to maintain its $85 billion of monthly bond purchases.

Three-month onshore rupee forwards rose 0.4 percent to 62.82 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts gained 0.3 percent to 62.90. 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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