India Rupee, Bonds Rally as Fed Taper Concern Eases on U.S. Data

India’s rupee climbed to a one-month high and government bonds advanced as U.S. jobs data tempered concern the Federal Reserve will further cut stimulus that’s buoyed emerging markets.

Employers in the world’s largest economy added 74,000 workers last month, the least since January 2011, official figures showed Jan. 10. The median estimate in a Bloomberg survey was 197,000. India’s industrial output unexpectedly dropped 2.1 percent in November from a year earlier, according to a Jan. 10 report. Consumer-price inflation probably slowed to 10.12 percent last month from 11.24 percent in November, a Bloomberg survey showed before data due today.

“The weaker-than-expected U.S. jobs data has boosted the Indian rupee and bonds today,” Ashtosh Raina, Mumbai-based head of foreign-exchange trading at HDFC Bank Ltd., said by phone. “The production data adds to market expectations that the central bank won’t raise interest rates this month.”

The rupee rose 0.6 percent to 61.5150 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It touched 61.4250 earlier, the strongest level since Dec. 11.

Ten-year government bonds rose for a third day, with the yield on the 8.83 percent notes due 2023 dropping five basis points, or 0.05 percentage point, to 8.71 percent, according to the central bank’s trading system. That’s the lowest level since Nov. 27, data compiled by Bloomberg show.

The Reserve Bank of India reviews monetary policy on Jan. 28. It left the benchmark repurchase rate unchanged at 7.75 percent on Dec. 18 after raising it by 50 basis points since mid-September to curb inflation. Wholesale prices climbed 7.52 percent in November, the fastest since September 2012.

Fed Outlook

Fed officials saw diminishing economic benefits from their bond-buying program, according to the minutes of the Federal Open Market Committee’s Dec. 17-18 meeting published last week. The U.S. central bank said in December it will cut its monthly bond buying by $10 billion to $75 billion starting January.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, fell 15 basis points from Jan. 10 to 8.66 percent. The rate slumped 162 basis points last week.

Three-month offshore non-deliverable forwards slipped 0.1 percent to 62.69 per dollar, data compiled by Bloomberg show. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, declined four basis points to 8.34 percent, data compiled by Bloomberg show.

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