Indian Rupee Volatility Drops to Five-Week Low as Inflows Rise

Volatility in India’s rupee fell to a five-week low after overseas investors pumped money into the nation’s stocks and bonds, helping allay concern about the nation’s record current-account deficit.

Global funds bought $1.1 billion more Indian equities than they sold in the first five days of this month, exchange data show, after U.S. lawmakers averted more than $600 billion in tax increases and spending cuts on Jan. 1. Foreign holdings of rupee-denominated debt rose $238 million and touched a record on Jan. 3. The inflows will help offset the nation’s record current-account shortfall, according to Barclays Plc.

“There are things going in favor of the rupee, such as ample global liquidity,” said Nick Verdi, a strategist at Barclays in Singapore. Volatility can fall further “because some of the global tail risks that markets were facing are receding, but at the same time the global economy is still relatively soft,” he said.

One-month implied volatility, a gauge of expected moves in exchange rates used to price options, fell eight basis points, or 0.08 percentage point, to 9.62 percent in Mumbai, according to data compiled by Bloomberg. It earlier touched 9.5275 percent, the lowest level since Dec. 4.

The current-account deficit widened to $22.3 billion in the quarter ended Sept. 30, government data showed Dec. 31.

The rupee advanced 0.4 percent 55.0050 per dollar, data compiled by Bloomberg show.

Three-month onshore rupee forwards traded at 56.01 per dollar, compared with 56.20 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.39, compared with 55.62 yesterday. 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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