Indian Rupee Advances Most in Six Weeks on Rate-Cut Speculation

India’s rupee rose the most in six weeks on speculation a slowing inflation measure that excludes food will allow the central bank to reduce interest rates next week, spurring buying of the nation’s stocks.

The Reserve Bank of India will lower its repurchase rate by 25 basis points to 7.50 percent at a March 19 review, according to 25 of 28 economists in a Bloomberg News survey. Three predict no change. Core wholesale prices advanced 3.8 percent in February after a 4.1 percent increase in January, according to a government report published yesterday.

“An RBI rate cut next week can lead to the rupee outperforming in Asia,” said Jonathan Cavenagh, a strategist at Westpac Banking Corp. in Singapore. “The currency is one of our favorites in the longer term.”

The rupee advanced 0.6 percent to 54.0250 per dollar in Mumbai, the biggest gain since Jan. 30, according to data compiled by Bloomberg. This takes the week’s gain to 0.5 percent. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell four basis points, or 0.04 percentage point, to 9.01 percent. The rate dropped 17 basis points this week.

Overseas funds bought a net $1.1 billion of the nation’s stocks this month through March 13, exchange data show.

While Barclays Plc says prices of manufactured goods excluding food increased less than 4 percent for the first time in almost three years, headline wholesale-price inflation accelerated to 6.84 percent last month from a year earlier after a 6.62 percent gain in January. The pickup is due to higher fuel costs as the government looks to reduce subsidies, the U.K. bank estimated in a report yesterday, adding that stripping this out would provide a number closer to 6.3 percent.

Three-month onshore rupee forwards traded at 55.10 per dollar, compared with 55.32 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.06 versus 55.33. 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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