Rupee Gains Most in Two Months as FOMC Quells Rate-Rise Outlook

India’s rupee rose the most in almost two months on speculation the Federal Reserve will hold off from raising interest rates, helping preserve inflows to the Asian nation’s higher-yielding assets.

The minutes from the Federal Open Market Committee’s September meeting released yesterday showed officials expressed concern that a deterioration in global growth and a stronger dollar posed risks to the U.S. economy. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, dropped 0.3 percent today to take the loss so far this week to 1.8 percent.

“The primary driver of the rupee’s strength are the FOMC comments that have eased concerns about higher U.S. rates,” said Anindya Banerjee, a currency analyst at Kotak Securities Ltd. in Mumbai. “The Fed’s comments provide a great comfort to emerging markets, including India, as market participants don’t want rates to go up on liquidity concerns.”

The rupee rose 0.6 percent to close at 61.0550 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. That’s the biggest gain since Aug. 14. The currency has advanced 1.2 percent this quarter.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 19 basis points, or 0.19 percentage point, to 6.52 percent. India’s 10-year government bonds yield 8.47 percent, compared with 2.32 percent on similar-maturity U.S. Treasuries.

Three-month offshore non-deliverable forwards gained 0.8 percent to 61.90 per dollar, according to data compiled by Bloomberg. 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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