Indian Rupee Strengthens Most in Two Months on Fed Rate Outlook

India’s rupee rose the most in more than two months as investors pushed back bets for an increase in U.S. interest rates, damping demand for the dollar.

The Bloomberg Dollar Spot Index fell for a second week as St. Louis Federal Reserve Bank President James Bullard said the central bank should consider delaying the end to its bond-buying program amid concern that slowing growth in the rest of the world will weigh on the U.S. recovery. The rupee also gained on optimism falling oil prices will help slow inflation.

“The risk of the U.S. raising rates has eased considerably after recent remarks from the officials,” said Anish Vyas, a currency analyst at Angel Broking Ltd. in Mumbai. “The drop in oil prices is a huge positive for the currency.”

The rupee rose 0.7 percent to close at 61.4425 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. That’s the biggest one-day gain since Aug. 14. In the week, it fell 0.2 percent.

Brent crude has dropped 23 percent since the end of June to $86.80 a barrel, easing import costs for India. Consumer prices rose 6.46 percent in September from a year earlier, the slowest pace since the index was created in January 2012 and compared with 7.73 percent in August, official data showed this week.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 34 basis points, or 0.34 percentage point today to 7.47 percent, according to data compiled by Bloomberg. It rose 90 basis points this week.

Three-month offshore non-deliverable forwards on the rupee fell 0.5 percent from a week ago and rose 0.7 percent today to 62.45 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 the greenback.

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