Indian Rupee Has Best Week in a Month on Current-Account Outlook

India’s rupee completed its first weekly gain since Oct. 11 on optimism a smaller current-account deficit will offset a potential slowdown in inflows as the U.S. prepares to pare stimulus.

The Federal Reserve may reduce asset purchases in the coming months, minutes of the Federal Open Market Committee’s Oct. 29-30 meeting showed Nov. 20. The Reserve Bank of India expects the current-account shortfall to narrow 36 percent in the year through March 2014 from the existing record. The RBI is cutting back its emergency foreign-exchange swaps for oil companies, while those for non-resident Indians are nearing the scheduled expiry date.

The rupee rose 0.1 percent today and 0.4 percent this week to 62.8650 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, fell 78 basis points since Oct. 15, or 0.78 percentage point, to 11.53 percent.

“The compression in the current-account deficit will likely keep the rupee supported in the 60 to 63 range even after the oil and NRI swaps come to an end,” Rohini Malkani, an economist at Citigroup Inc. in Mumbai, wrote in an e-mail today. “There remains an uneasy flux given the uncertainty on the policy anchor, liquidity framework, RBI swap facilities coming to an end and the taper overhang.”

The shortfall in the current account will shrink to around $56 billion this fiscal year from an unprecedented $88 billion in the prior 12 months, RBI Governor Raghuram Rajan said Nov. 13. Oil refiners are also buying most of their dollars in the local market as the central bank cuts direct supplies, he said.

Swap Facilities

Rajan announced on Sept. 4 concessional dollar swaps for banks raising debt overseas and on deposits from Indian citizens living abroad, which are due to expire on Nov. 30. The agreements attracted $22.7 billion as of Nov. 20, the RBI said in a statement.

The governor has increased the benchmark repurchase rate at the last two meetings to 7.75 percent as he vowed to sustain confidence in the rupee by keeping inflation low.

Three-month offshore non-deliverable rupee forwards declined 0.1 percent today to 64.61 per dollar, according to data compiled by Bloomberg. 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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