Rupee Rises to Three-Week High as U.S. House Passes Budget Bill

India’s rupee rose to the highest level in almost three weeks as U.S. lawmakers passed a bill to avert $600 billion in automatic tax increases and spending cuts that were set to take effect from today.

Asian stocks advanced by the most in two weeks after the House avoided higher taxes for most U.S. workers as Republicans abandoned their effort to attach spending cuts that would have been rejected by the Senate. Inflows into India, including foreign direct investment and purchases of shares and bonds, will be $74.5 billion in the year through March 2013, more than an earlier prediction of $72 billion, Kotak Mahindra Bank Ltd. forecast in a report received today.

“The saving grace is capital flows, which appear to be slightly better than expected,” Indranil Pan, chief economist at Kotak Mahindra in Mumbai, wrote in the report. “Current-account deficit vulnerability will remain an issue.”

The rupee advanced 0.6 percent to 54.3600 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 54.2650 earlier, the strongest level since Dec. 13. The rupee dropped 3.5 percent last year after plunging 16 percent in 2011. One-month implied volatility, a gauge of expected moves in exchange rates used to price options, increased five basis points, or 0.05 percentage point, to 10.15 percent. The rate decreased 190 basis points in 2012.

Global funds boosted holdings of domestic shares by $4.4 billion last month, taking inflows in 2012 to $24.5 billion, exchange data show.

Gold Imports

India’s current-account deficit widened to a record $22.3 billion in the quarter ended Sept. 30, official data showed Dec. 31, as a faltering global economy crimped exports. The world’s largest bullion buyer may raise taxes on gold imports to curb the shortfall, Finance Minister Palaniappan Chidambaram said in New Delhi today.

Exports will pick up in the second half of the fiscal year through March and capital inflows are enough to finance the current-account deficit, Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said separately in New Delhi. The rupee is expected to stay at current levels for the rest of the fiscal year, he said.

Three-month onshore rupee forwards traded at 55.33 per dollar, compared with 55.73 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.21 versus 55.70. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

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