India’s Rupee Forwards Advance as Inflows Seen Increasing

Indian rupee forwards traded offshore rose on optimism Asia’s relatively fast economic growth will attract capital inflows.

Global funds pumped $10.3 billion into local stocks and bonds this year, exchange data show. Developing Asian economies are forecast to grow 6.7 percent this year, outpacing an estimated 2.8 percent expansion for the U.S., the International Monetary Fund said in a report yesterday.

“The IMF report is a positive as growth in emerging markets is likely to be higher, which supports the case of continued foreign inflows into the region,” said Amogh Moghe, a currency trader at Mecklai & Mecklai Ltd. in Mumbai.

Three-month offshore non-deliverable forwards on the rupee advanced 0.3 percent to 61.31 per dollar, according to data compiled by Bloomberg. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

The rupee ended little changed at 60.1350 per dollar in the spot market in Mumbai from its April 7 close. Financial markets in India were shut yesterday for a local holiday.

The currency gained 3.2 percent in the first quarter, the biggest advance since the three months through September 2012, and touched an eight-month high of 59.60 per dollar on April 2 as policies aimed at containing inflation and the current-account deficit buoyed confidence.

Rupee Forecasts

Gains in the rupee will halt as the winner of elections in the world’s largest democracy needs to build consensus for policies to revive the economy, according to the most accurate forecaster for the currency.

The exchange rate will retreat to a range between 60 and 62 before results of the vote are announced May 16, Yes Bank Ltd., which had the closest estimates in the last four quarters in data compiled by Bloomberg, predicts. A new government that takes steps to improve external finances and economic growth would help boost it to 58 by March 2015, according to the Mumbai-based lender.

“Beyond the election, capital inflows will improve only if it’s a strong coalition,” Shubhada Rao, chief economist in Mumbai at Yes Bank, said in an interview on April 4. “If we have a weak coalition, then the rupee is likely to go through some short-term turbulence.”

Nomura Holdings Inc., the second-best forecaster, sees the rupee rising toward 58 per dollar as early as this quarter, before retreating to 59.5 by year-end.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, fell seven basis points, or 0.07 percentage point, to 8.8750 percent.

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