Rupee Volatility Declines as Oil Seen Cutting India’s Deficit

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A gauge of expected swings in the rupee fell for a third day on speculation oil prices near a 2009 low will help cut India’s current-account deficit.

Brent crude has retreated 34 percent since the end of September, reducing costs for India, which imports more than three-fourths of its oil. It sank to $58.50 a barrel on Dec. 16, the least since May 2009. Lower oil prices will improve the current-account deficit and make India less vulnerable to capital outflow from higher U.S. interest rates, according to Skandinaviska Enskilda Banken AB. Bonds were steady today.

“Oil prices dropping significantly is a huge positive for the management of India’s external situation and the rupee,” said Sujan Hajra, a Mumbai-based economist at Anand Rathi Financial Services Ltd. It can shield the rupee in case an increase in U.S. rates causes outflows from emerging markets, he said.

One-month implied volatility in the rupee dropped 35 basis points, or 0.35 percentage point, to close at 7.60 percent in Mumbai, data compiled by Bloomberg show. The gauge, which surged 242 basis points last week, climbed to as high as 8.14 percent earlier.

In the spot market, the currency advanced 0.1 percent to 63.2450 a dollar, according to prices from local banks compiled by Bloomberg. It slumped to 63.8850 on Dec. 17, the weakest level since November 2013, amid a selloff in emerging markets.

The July-September shortfall in India’s broadest measure of trade widened to $10.1 billion, the largest since the quarter ended June 2013, the Reserve Bank of India said this month.

Three-month offshore non-deliverable forwards rose 0.2 percent to 64.27 a dollar, data compiled by Bloomberg show.

The yield on Indian sovereign bonds maturing July 2024 was little changed from Dec. 19 at 7.96 percent, prices from the Reserve Bank of India’s trading system show. One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell three basis points to 7.88 percent, according to data compiled by Bloomberg.

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