Rupee Gains Most in 2 Weeks as Improving Economy Attracts Flows

India’s rupee rose the most in almost two weeks on optimism foreigners will boost holdings of local assets as inflation eases and the deficits narrow.

Global funds bought a net $959 million of Indian stocks this month, exchange data show, helping boost the S&P BSE Sensex index to a record yesterday. An official report last week showed consumer prices rose the least in two years, and the government has predicted shortfalls in the current account and public finances will shrink. The Federal Reserve will press on with stimulus cuts and switch to qualitative guidance for assessing interest rates, according to economists surveyed by Bloomberg before a two-day meeting that ends today.

The rupee strengthened 0.4 percent to 60.9550 per dollar in Mumbai, the biggest gain since March 6, according to prices from local banks compiled by Bloomberg. The currency is likely to trade between 60.80 and 61.10 in the coming days, according to DCB Bank Ltd.

“There are inflows,” said Naveen Raghuvanshi, a trader at DCB Bank in Mumbai. “Stop-losses were also triggered” when the rupee advanced past 61.00 per dollar, he said, referring to sales of the greenback meant to limit losses caused by its drop.

The U.S. central bank will cut its monthly bond buying by $10 billion to $55 billion, according to economists surveyed by Bloomberg on March 14-17. Policy makers will scrap a 6.5 percent unemployment-rate target in favor of a range of economic indicators, 76 percent of the economists said.

Narrowing Deficits

Indian Finance Minister Palaniappan Chidambaram said March 7 that the current-account deficit will drop below $40 billion in the year through March 31, from a record $88 billion in the previous 12 months. The budget gap will narrow to 4.6 percent of gross domestic product, the least since 2007-2008, from 4.9 percent, he estimated in February.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, fell one basis point, or 0.01 percentage point, to 8.79 percent.

Three-month offshore non-deliverable forwards rose 0.2 percent to 62.16 per dollar. 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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