India’s rupee gained the most in more than a year as an emerging-market selloff abated and policy makers in India said the economy is sound enough to lure investors.
India is in a “good position” compared with other emerging markets in terms of growth, cooling inflation, low short-term currency liabilities and a narrowing fiscal deficit, central bank Governor Raghuram Rajan said Monday. Macroeconomic parameters are sound and measures to attract investors will continue, Finance Minister Arun Jaitley said in New Delhi.
The rupee rebounded 0.8 percent to 66.0950 a dollar, the biggest gain since May 2014, according to prices from local banks compiled by Bloomberg. The currency and government bonds extended their rally after China cut interest rates and lowered the amount of cash banks must set aside.
The rupee slumped 1.2 percent on Monday as the benchmark S&P BSE Sensex index of shares posted its biggest loss in six years. The equity gauge rose 1.1 percent on Tuesday.
“High relative local bond yields will support the currency once risk appetite stabilizes,” said Nizam Idris, the Singapore-based head of foreign exchange and fixed-income strategy at Macquarie Bank Ltd.
India, being a large energy-importer, will benefit from falling oil prices and is less reliant on China than many other Asian economies, he said. Only Indonesia has a higher 10-year sovereign note yield than India among Asia’s major emerging markets.
Bonds advanced, with the yield on the securities due May 2025 dropping eight basis points to 7.81 percent, the most in over two months, according to prices from the Reserve Bank of India’s trading system. It jumped 11 basis points on Monday, the most for benchmark 10-year debt since December.
Investors are fleeing riskier assets after China’s shock devaluation of the yuan on Aug. 11 spurred speculation of a currency war and as the U.S. Federal Reserve moves closer to raising interest rates.
China cut interest rates on Tuesday for the fifth time since November to stem the biggest stock market rout since 1996 and a deepening economic slowdown.