India’s Rupee Gains Most in a Week on Global Stimulus Optimism

India’s rupee gained the most in almost a week on optimism policy makers in the world’s largest economies will maintain loose monetary policies to support growth, potentially boosting inflows into emerging markets.

Federal Reserve Chairman Ben S. Bernanke said yesterday stimulus won’t be reduced until U.S. unemployment drops, while Haruhiko Kuroda will discuss policy today at his first press conference as Bank of Japan governor. The rupee’s gains will be limited as importers will look to buy dollars to pay month-end bills, according to Edelweiss Financial Advisors Ltd.

“There is greater comfort now on the sustainability of offshore flows into Indian debt and equity,” said J. Moses Harding, executive vice president at IndusInd Bank Ltd. in Mumbai. “The undertone on the rupee is bullish.”

The rupee advanced 0.2 percent to 54.2825 per dollar in Mumbai, the biggest gain since March 15, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell one basis point, or 0.01 percentage point, to 8.81 percent.

Foreign investors yesterday bought permits to buy 162.4 billion rupees ($3 billion) of local-currency debt, according to two people familiar with the matter who asked not to be identified as they aren’t authorized to speak to the media. Overseas funds’ holdings of the notes rose to a record $35.3 billion on March 15 and purchases of stocks climbed a net $1.6 billion in this month through March 19, exchange data show.

Dollar-based investors will earn 10.1 percent including interest, the most in Asia, by holding rupees until the end of this year, according to data compiled by Bloomberg based on the median estimate in surveys and prevailing deposit rates.

Three-month onshore rupee forwards traded at 55.38 per dollar, compared with 55.44 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.33 versus 55.37. 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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