Rupee Volatility Drops to Two-Month Low as India Inflows Climb

  • Global funds' holdings of local bonds, stocks rise this week
  • Top rupee forecaster says currency to sustain best Asia gain

A gauge of expected swings in India’s rupee slipped to a two-month low amid optimism demand for the nation’s assets is picking up as sentiment toward emerging markets improves.

Foreigners bought $221.3 million more Indian shares than they sold in the first three trading days of this month, after pulling $3.46 billion from the market in August and September. Holdings of rupee-denominated debt have risen 3.54 billion rupees ($54.5 million) in October. Developing-nation stocks and Asian currencies climbed on Wednesday as traders bet the Federal Reserve will hold off raising interest rates this year. India’s central bank on Sept. 29 cut borrowing costs by more than economists estimated and allowed global funds greater access to local sovereign notes.

The rupee’s one-month implied volatility, used to price options, fell two basis points in a sixth day of declines to 6.60 percent in Mumbai, data compiled by Bloomberg show. It fell to 6.50 percent earlier, the lowest since Aug. 12. In the spot market, the rupee strengthened 0.7 percent to 64.9650 a dollar, advancing for the sixth time in seven days.

“Fresh dollar inflows have increased,” said Rohan Lasrado, Mumbai-based head of foreign-exchange trading at RBL Bank Ltd. “The environment has changed since the Reserve Bank of India policy and we expect more money to come in.”

Top Forecaster

The rupee has been Asia’s best-performing currency since the end of August. ABN Amro Bank NV, the top forecaster in Bloomberg’s quarterly rankings, sees the currency maintaining that position on the back of higher inflows.

India will raise the ceiling on foreign ownership of its sovereign bonds to 1.67 trillion rupees effective Oct. 12, from 1.54 trillion rupees, the RBI said in a statement on Tuesday. It unveiled a plan last week to increase the cap in phases to 5 percent of the total amount outstanding by March 2018, from about 3.8 percent.

The yield on government notes due May 2025 rose one basis point to 7.54 percent in Mumbai on Wednesday, prices from the RBI’s trading system show. It closed at 7.51 percent on Oct. 5, the lowest for a benchmark 10-year security since July 2013, according to data compiled by Bloomberg.

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