India Rupee Volatility Drops to Three-Year Low as Rains Revive

A gauge of expected swings in India’s rupee declined to a three-year low as a revival in the monsoon eased concerns that farm produce will be affected and inflation will accelerate.

The shortfall in the June-September rains narrowed to 36 percent of the 50-year average since June 1, compared with 43 percent on July 11, the weather department said yesterday. Consumer prices advanced 7.3 percent in June, the smallest gain in data going back to the start of 2012. Industrial production climbed 4.7 percent in May from a year earlier, the fastest pace in 19 months, while exports rose 10.2 percent in June.

Three-month implied volatility, a measure of expected moves in the rupee’s exchange rate used to price options, fell 27 basis points to 7.08 percent in Mumbai, according to data compiled by Bloomberg. That’s the lowest since August 2011. In the spot market, the currency fell less than 0.1 percent to 60.1775 per dollar.

“The recent news about monsoon revival, easing inflation and rising industrial production is positive,” said Vikas Babu, a Mumbai-based foreign-exchange trader at state-owned Andhra Bank. “The market was largely lackluster today. The rupee gained initially as exporters sold dollars and dropped a bit later as oil companies were seen in the market.”

Three-month offshore non-deliverable forwards rose 0.1 percent to 60.83 per dollar. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in the U.S. currency.

Before it's here, it's on the Bloomberg Terminal.