Rupee Strengthens Most in a Week on Slowest Inflation Since 2009

India’s rupee rose the most in more than a week on optimism the slowest inflation in three years will spur demand for the nation’s assets.

The benchmark wholesale-price index rose 7.18 percent from a year earlier in December, official figures showed today. That’s the slowest pace since December 2009 and less than the 7.37 percent median estimate in a Bloomberg survey. Global funds poured $26 billion into Indian equities since the end of 2011, exchange data show. Rupee gains will be curbed by a decline in the nation’s export earnings, according to IDBI Bank Ltd.

“The rupee is so far just being supported by capital inflows,” said N.S. Venkatesh, Mumbai-based head of treasury at the state-run bank. “Falling exports are retaining pressure on the currency.”

The rupee advanced 0.5 percent to 54.50 per dollar in Mumbai, the biggest gain since Jan. 2, according to data compiled by Bloomberg. One-month implied volatility in the rupee, a gauge of expected moves in exchange rates used to price options, was unchanged at 9.95 percent.

India’s overseas shipments fell 1.9 percent in December from a year earlier, Director General of Foreign Trade Anup Pujari said on Jan. 11, the eighth straight month of decreases. The shortfall in India’s current account, the broadest measure of trade, widened to a record $22 billion in the quarter through September, official data show.

Three-month onshore rupee forwards traded at 55.43 per dollar, compared with 55.71 on Jan. 11, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.26 versus 55.69. 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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