India’s Rupee Reaches Two-Week High as ‘Austere’ Budget Forecast

India’s rupee rose to the highest level in more than two weeks on speculation Finance Minister Palaniappan Chidambaram will announce steps to pare the fiscal deficit when he presents the annual budget tomorrow.

The government will aim to narrow the widest gap among major emerging markets to 4.8 percent of gross domestic product in the year through March 2014 from an estimated 5.3 percent this year, according to research notes from Goldman Sachs Group Inc. and Credit Suisse Group AG. Overseas investors bought $49 million more Indian stocks than they sold on Feb. 25, taking inflows this year to $8.3 billion, exchange data show.

“In all likelihood, it is going to be the most austere budget in recent years as the focus of the government remains on managing its fiscal and current-account deficits and reviving inward investment flows,” said Tim Fox, group head of research and chief economist at Emirates NBD PJSC in Dubai, the biggest United Arab Emirates bank by assets. The budget announcement will be a “catalyst” for the rupee to strengthen, he said.

The Indian currency advanced 0.4 percent to 53.8750 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 53.6250 earlier, the strongest level since Feb. 11. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, was unchanged at 9.50 percent.

Fiscal Commitment

India will probably contain the budget deficit at about 5.3 percent of gross domestic product this fiscal year as it tries to slow inflation, and economic growth is set to recover, Finance Ministry advisers said.

“The government is committed to fiscal consolidation,” they said in a report in New Delhi today, predicting GDP will rise as much as 6.7 percent in the year through March 2014.

The shortfall in India’s current account, the broadest measure of trade, is expected to be “significantly higher” this fiscal year than the previous period’s record 4.2 percent of GDP, Reserve Bank of India Governor Duvvuri Subbarao said Feb. 11.

Three-month onshore rupee forwards traded at 54.99 per dollar, compared with 55.22 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 54.86 versus 55.14. 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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