Indian Rupee Rises to 8-Month High on Economy, Election Optimism

The rupee climbed to the highest level in almost eight months as foreigners stepped up purchases of Indian assets on speculation the election of a new government will hasten the nation’s economic recovery.

Global funds pumped $3.5 billion into Indian stocks and debt this month, exchange data show. Inflation has eased, according to official figures, and the government projects faster growth and narrower deficits. The opposition Bharatiya Janata Party is leading in opinion polls before elections due to start next month, as voters punish the ruling Congress for corruption scandals and the slowest growth in a decade.

“Overall fundamentals are improving for India and there’s a market perception that a BJP win could be good for inflows,” said Hamish Pepper, a strategist at Barclays Plc in Singapore. “This is a very positive time for the rupee.”

The currency rose 0.5 percent to 60.48 per dollar in Mumbai, prices from local banks compiled by Bloomberg show. It touched 60.4275, the strongest level since Aug. 1. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell eight basis points, or 0.08 percentage point, to 9.15 percent.

Bonds Steady

The yield on the 8.83 percent sovereign bonds due November 2023 was little changed at 8.788 percent compared with 8.784 percent yesterday, according to the central bank’s trading system.

The monetary authority will keep its benchmark repurchase rate at 8 percent at an April 1 review, according to 22 of 23 economists in a Bloomberg survey. One sees an increase to 8.25 percent. Consumer price-inflation eased to a two-year low in February and wholesale prices rose by the least in nine months, official reports showed.

India’s current-account deficit will be kept below $40 billion in the year through March 31 compared with a record $88 in the previous year, Finance Minister Palaniappan Chidambaram said March 7. The budget gap will narrow to 4.6 percent from 4.9 percent, he estimated in February. Gross domestic product is projected to grow 4.9 percent, faster than the previous period’s 4.5 percent that was the slowest since 2003.

Three-month offshore non-deliverable forwards strengthened 0.5 percent to 61.62 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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