Rupee Completes Best Week Since November on Diesel Price Policy

India’s rupee completed the best week since November after the government allowed state refiners to adjust diesel prices, a move that may help rein in energy subsidies and narrow the budget deficit.

The currency rose past 54 per dollar today for the first time since Nov. 2 after Oil Secretary G.C. Chaturvedi said yesterday oil companies have been permitted to change prices of the fuel over a period of time. Prime Minister Manmohan Singh has stepped up efforts to improve government finances since mid-September, when he raised diesel prices for the first time in 14 months, to avert a sovereign ratings downgrade.

“The government’s fuel-policy move is good for fiscal management and will help boost confidence among overseas investors,” said Harihar Krishnamoorthy, Mumbai-based treasurer at the Indian unit of FirstRand Ltd., South Africa’s second-largest financial services provider. “This will help attract capital inflows.”

The rupee rose 1.9 percent this week to 53.7050 per dollar in Mumbai, the strongest level since Nov. 2, according to data compiled by Bloomberg. One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, rose 20 basis points, or 0.20 percentage point, this week to 10.15 percent.

Overseas funds have bought a net $2.2 billion of domestic shares this month through Jan. 16, exchange data show. Indian refiners are losing 9.6 rupees (18 cents) on each liter of diesel they sell, according to oil ministry data.

Offshore forwards indicate the rupee will trade at 54.60 to the dollar in three months, compared with expectations of 55.69 at the end of last week. 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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