Rupee Volatility Declines for Fourth Week as Stock Inflows Climb

  • Foreign funds buy $1.4 billion of Indian stocks in March
  • Receding bets of a Fed rate increase curbed swings: Scotiabank

A gauge of expected swings in India’s rupee capped a fourth weekly decline amid signs demand for the nation’s stocks is picking up.

Foreign funds have been net buyers of shares every day in March, taking purchases to $1.4 billion, after two months of withdrawals, data compiled by Bloomberg show. The inflows have come as stimulus measures in China and Europe eased concern about global growth and after India’s Feb. 29 budget retained the government’s goal of narrowing the fiscal deficit, while boosting spending on roads, power plants and other public projects.

“Fading expectations of tightening by the Federal Reserve and China’s efforts in stabilizing the yuan have led to a decline in volatility,” said Qi Gao, a currency strategist at Scotiabank in Hong Kong. “The pick-up in flows could be more driven by the budget sticking to the fiscal-consolidation path.”

The rupee’s three-month implied volatility, used to price options, fell eight basis points from March 4 to 7.07 percent in Mumbai, data compiled by Bloomberg show. The gauge has dropped 123 basis points since Feb. 12. In the spot market, the rupee rose 0.1 percent this week at 67.0550 a dollar, after gaining 2.3 percent last week in its biggest jump since September 2013.

Economists surveyed by Bloomberg see the Fed keeping rates unchanged at its policy review next week.

The yield on Indian sovereign bonds due January 2026 was little changed for the week at 7.63 percent, prices from the Reserve Bank of India’s trading system show. It slipped 15 basis points last week in the biggest slide for 10-year benchmark debt since October.

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