Rupee Has Best Month Since September on Inflows: Mumbai Mover

India’s rupee completed its first monthly gain since September as policy makers’ steps to boost growth and improve public finances attracted capital.

The Reserve Bank of India lowered borrowing costs on Jan. 29 and said easing inflation will give some room to cut rates further. The government allowed state refiners to adjust diesel prices in January, aimed at curbing subsidies and tackling the widest budget deficit among the largest emerging economies. Global funds boosted holdings of Indian stocks and bonds by $4.2 billion this month, exchange data show.

“The outlook is positive and we are seeing the prospect of inflows,” said Vikas Babu, a trader at Andhra Bank in Mumbai. “Earlier, we had seen steps only from the government but now the RBI also seems to be pro-growth,”

The rupee advanced 3.3 percent this month to 53.2250 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 53.0650 earlier, the strongest level since Oct. 18. The currency, which rose 0.2 percent today, will strengthen to 52.50 in “a couple of weeks,” according to Andhra Bank.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, fell 28 basis points, or 0.28 percentage point, to 9.82 percent this month. The rate rose 7 basis points today.

Bond Investment

Foreign investors poured $3.7 billion into Indian shares this month through Jan. 29, surpassing the previous January record set last year, while investment in rupee-denominated debt rose to an all-time high of $33.5 billion on Jan. 28. The nation raised the cap on global funds’ purchases in local-currency bonds by $10 billion to $75 billion on Jan. 24.

The increase in the limit “should maintain capital flow pressure on the rupee to appreciate,” analysts at Credit Suisse Group AG, including Singapore-based Ray Farris, wrote in a research report received today.

Three-month onshore rupee forwards traded at 54.21 per dollar, compared with 54.41 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 53.98 versus 54.14. 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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