Rupee Volatility Declines to Four-Month Low on RBI Intervention

A gauge of expected swings in India’s rupee fell to a four-month low on speculation the central bank will keep intervening to maintain stability in the currency.

Bank of America Merrill Lynch predicts the monetary authority will buy $62.5 billion in the next 12 months to keep the rupee competitive, economist Indranil Sen Gupta said in an April 9 interview. The nation’s foreign-exchange reserves have climbed to a record $343 billion, according to Reserve Bank of India data. The rupee has gained 0.8 percent this year, the third-best performance in Asia.

“The RBI’s constant intervention has ensured the rupee’s stability,” said Anindya Banerjee, a currency analyst at Kotak Securities Ltd. in Mumbai. “The central won’t blink on intervention as it seeks to build reserves and protect the rupee’s relative strength.”

One-month implied volatility fell 16 basis points, or 0.16 percentage point, to 5.76 percent in Mumbai, data compiled by Bloomberg show. It declined to 5.71 percent earlier, the lowest level since Dec. 12. In the spot market, the rupee dropped 0.3 percent to 62.51 per dollar.

The central bank bought $7.87 billion in the currency market in February after purchasing $12.1 billion in January, which was the most in seven years, RBI data show.

Data Monday may show India’s consumer-price index rose 5.41 percent in March, the fastest pace in six months, compared with a 5.37 percent gain in February, according to the median estimate in a Bloomberg survey. The figures are due at 5:30 p.m. local time.

The yield on government bonds maturing in July 2024 was little changed at Friday’s closing level of 7.80 percent, which was the highest for the benchmark 10-year bonds since March 16, prices from the RBI’s trading system show.

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