Rupee Advances on Speculation India to Ease Debt-Purchase Curbs

India’s rupee climbed the most in a week on speculation that policy makers will ease restrictions on foreign investors’ purchases of the nation’s debt.

Indian officials are in talks with JPMorgan Chase & Co. and other providers of bond indexes, seeking inclusion of the nation’s debt, and may lift some curbs on foreign purchases if needed, Reuters reported today without identifying its sources. The rupee earlier fell as much as 0.6 percent against the dollar, which was buoyed by signs of a compromise among U.S. lawmakers that could avert an unprecedented default in the world’s biggest economy.

“An opening up of the bond market will lead to inflows” and boost the rupee, said Paresh Nayar, head of currency and money markets at FirstRand Ltd. in Mumbai. Inclusion in JPMorgan Chase & Co.’s GBI-Global Diversified Index of emerging-market government debt could lure as much as $40 billion over 12 months, Standard Chartered Plc estimates.

The rupee gained 0.9 percent to 61.36 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 26 basis points, or

0.26 percentage point, to 14.87 percent.

House Republican and Senate Democratic leaders are open to a short-term increase in the $16.7 trillion debt ceiling, according to congressional aides who spoke on condition of anonymity. The Bloomberg Dollar Index, which tracks the greenback against 10 major counterparts, rose the most since Sept. 5 yesterday.

Offshore Bond

India’s current-account deficit in the year through March 2014 may come in about 14 percent lower than the Finance Ministry has targeted, easing pressure on the rupee, Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said in an interview yesterday.

International Finance Corp., the World Bank’s investment arm, plans to sell a record $1 billion of rupee bonds offshore to fund investments in India, it said yesterday.

“The announcement of the bonds issuance does not have direct implications towards altering the capital inflows arithmetic,” Gaurav Garg, a strategist at Citigroup Inc. in Singapore, wrote in a research report today. “However, the step in the right direction towards greater capital account convertibility should support investor confidence further.”

One-month onshore rupee forwards rose 1.3 percent to 61.61 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts advanced 0.5 percent to 62.13. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.