India Rupee Rises From 10-Week Low as RBI Restricts Gold Imports

India’s rupee rebounded from a 10-week low after the central bank tightened rules on gold imports. Government bonds were steady.

The Reserve Bank of India today said it would immediately restrict shipments of gold on consignment basis by banks only to meet “genuine” needs of jewelry exporters. The rupee had weakened earlier on speculation bullion importers are stepping up dollar purchases today on Akshaya Tritiya, a festival on which it is considered auspicious to buy the metal.

The rupee advanced 0.1 percent to 54.7350 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 55.0250 earlier, the weakest level since March 4.

“The RBI restriction was a big positive,” said Sudarshan Bhatt, chief currency trader at state-run Corporation Bank in Mumbai. “Exporters also sold the dollar at around 55.”

Demand for gold in the world’s largest importer of the commodity is seen at 30 metric tons today, compared with 20 tons a year ago, said Prithviraj Kothari, managing director of Riddisiddhi Bullions Ltd. in Mumbai.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, rose 35 basis points, or 0.35 percentage point, to 8.62 percent.

Inflation, Trade

The rupee was also pressured and bonds briefly fell after official data today showed the trade deficit widened last month to $17.8 billion as gold imports surged 138 percent from a year earlier. The shortfall in the current account, the broadest measure of trade, limits room for further interest-rate cuts, central bank Governor Duvvuri Subbarao said on May 3.

This countered optimism stemming from another government report that showed consumer prices rose 9.39 percent in April, less than a 9.74 percent increase forecast by economists in a Bloomberg survey. Wholesale price inflation probably slowed to 5.45 percent in April from a year earlier, after a 5.96 percent increase in March that was the least since 2009, according to the median estimate of 29 economists in a separate survey before data due tomorrow.

The yield on the 8.15 percent bonds due June 2022 was little changed from May 10 at 7.59 percent, according to the central bank’s trading system. That is the lowest level for a benchmark 10-year note since July 2010.

Three-month onshore rupee forwards traded at 55.74 per dollar, compared with 55.59 on May 10, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.59 versus 55.57. 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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