India’s Rupee Climbs to Eight-Month High on Election Optimism

India’s rupee rose to an eight-month high and sovereign bonds gained on speculation the world’s largest democracy will elect a government capable of reviving economic growth.

The opposition Bharatiya Janata Party is leading in opinion polls before elections due to start next month, as voters seek to punish the ruling Congress for graft scandals and the slowest growth in a decade. Global funds have pumped $3.6 billion into Indian stocks and debt this month, exchange data show.

“Right now there’s euphoria and the rally is being driven by sentiment,” said Paresh Nayar, head of currency and money markets at FirstRand Ltd. in Mumbai. “The central bank will be closely monitoring the situation because if there’s any unfavorable election outcome, they will have to roll out the ammunition to stabilize the markets.”

The rupee rose 0.5 percent to 60.1650 per dollar in Mumbai, prices from local banks compiled by Bloomberg show. It touched 60.07, the strongest level since July 30. Gains beyond 60 will be “tough,” and any move past that level will be a trigger for an extended rally in the Indian currency, Nayar said.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 17 basis points, or 0.17 percentage point, to 8.98 percent.

Barclays Plc says investors should be cautious on the rupee during the course of India’s elections, amid concern next month’s vote won’t deliver a clear winner. The currency’s rally will stall at 59 and could swing widely depending on the outcome, Hamish Pepper, a strategist at the lender in Singapore, said in a telephone interview yesterday.

Bonds Steady

The yield on the 8.83 percent sovereign bonds due November 2023 ended at 8.783 percent, compared with 8.788 percent yesterday, according to the central bank’s trading system. The Reserve Bank of India added 100 billion rupees to the financial system through a seven-day term repo auction today and the government sold 140 billion rupees of treasury bills as planned.

The monetary authority will keep its benchmark repurchase rate at 8 percent at an April 1 review, according to 24 of 25 economists in a Bloomberg survey. One sees an increase to 8.25 percent. Gross domestic product will grow 4.9 percent in the year through March 31, the government projects, compared with the previous period’s 4.5 percent that was the slowest since 2003.

The Congress party will restore growth in India to more than 8 percent within three years, while expanding welfare programs to elevate two-thirds of the nation into the middle class, according to its manifesto released today for the election starting April 7. It didn’t include specifics on how it’ll pay for the policies.

Three-month offshore non-deliverable forwards strengthened 0.6 percent to 61.26 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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