Rupee Surges Most in a Month as Currency Passes ‘True’ Test

India’s rupee rose the most in almost a month after central bank Governor Raghuram Rajan at an unscheduled press conference today said the nation’s current-account deficit will narrow 36 percent from a record.

The currency also rallied after Rajan said oil refiners are now back in the market to buy most of the dollars they need, instead of approaching the Reserve Bank of India under emergency measures announced in August to stem the currency’s plunge. Reintroduction of this demand would be a “true” test of the rupee’s stability, Rajan had said last month. The process of normalization had started on Oct. 14, he said today.

“This press conference was to reassure market nerves that were showing some sort of strains,” Indranil Pan, an economist at Kotak Mahindra Bank Ltd. in Mumbai, wrote in a research report today. It allayed “fears that the currency depreciation would be worse if oil refiners were to come back with their dollar demand into the market in the fullest way.”

The rupee surged 0.6 percent to 63.32 per dollar in Mumbai, the biggest gain since Oct. 17, according to prices from local banks compiled by Bloomberg. It touched 63.91 earlier, the weakest level since Sept. 13. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 29 basis points, or 0.29 percentage point, to 13.65 percent.

There is no reason for the currency to be volatile, Rajan said today. He predicts the shortfall in the broadest measure of trade will be around $56 billion in the year through March 31, compared with $88 billion in the previous period.

Bonds Advance

Government bonds rose after Rajan said the central bank will meet liquidity needs adequately, adding the RBI will buy 80 billion rupees of debt on Nov. 18.

The yield on the 7.16 percent notes due May 2023 plunged 14 basis points to 8.92 percent, the biggest drop since Oct. 8, prices from the central bank’s trading system show. The rate reached 9.15 percent earlier, the highest since Aug. 19.

India’s rupee and bonds had dropped earlier after reports showed inflation accelerated faster than economists predicted and factory output missed estimates.

Consumer prices climbed 10.09 percent from a year earlier, after a 9.84 percent increase in September, official data showed after the market shut yesterday. The median estimate in a Bloomberg survey was for a 9.9 percent gain. Industrial production grew 2 percent in September, another report showed, compared with a 3.5 percent rise predicted in a separate survey.

Wholesale-price inflation accelerated 6.95 percent in October from 6.46 percent in September, according to the median of 40 estimates in a Bloomberg survey before data due tomorrow.

Three-month onshore rupee forwards rose 0.6 percent to 64.92 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts advanced 0.2 percent to 65.55. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

Before it's here, it's on the Bloomberg Terminal.