Rupee Rises to One-Week High as Lower Oil Seen Curbing Inflation

India’s rupee climbed to a one-week high on optimism lower oil prices will help cool inflation and narrow the budget deficit.

Brent crude has dropped 23 percent since the end of June to $86.25 a barrel, reducing costs for India, which imports almost 80 percent of its oil. Consumer prices rose 6.46 percent last month from a year earlier, the slowest pace since the index was created in January 2012, the government reported Oct. 13. India aims to narrow the budget gap to a seven-year low of 4.1 percent of gross domestic product in the 12 months through March 2015.

“The drop in oil prices below $87 is a huge kicker for India,” said Ankur Jhaveri, co-head of currency and rates in Mumbai at Edelweiss Financial Services Ltd. “Lower oil prices will help cut inflation and the deficit, creating conditions for the Reserve Bank of India to cut rates” and spur economic growth, he said.

The rupee rose less than 0.1 percent to close at 61.2875 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It touched 61.16 earlier, the strongest level since Oct. 14. Financial markets in India are closed tomorrow and Oct. 24 for local holidays.

The RBI could consider easing monetary policy as early as March should inflation slow further, Ashima Goyal, a member of the central bank’s technical advisory committee that makes policy recommendations to Governor Raghuram Rajan, said in an interview on Oct. 20.

The yield on the 8.4 percent notes due July 2024 fell one basis point to 8.36 percent, prices from the central bank’s trading system show.

The rupee’s one-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 26 basis points, or 0.26 percentage point today, to 6.62 percent, according to data compiled by Bloomberg.

Three-month offshore non-deliverable forwards on the rupee rose 0.2 percent today to 62.07 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.

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