Rupee Volatility Declines After Current-Account Deficit Narrows

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A gauge of expected swings in India’s rupee fell to a two-month low after the central bank reported the narrowest current-account deficit in four quarters.

The January-March shortfall in the broadest measure of trade was $1.3 billion, compared with an $8.3 billion deficit in the previous quarter, the Reserve Bank of India said in a statement Wednesday after market hours. The figures may buoy the sentiment of investors worried about the impact of a weak monsoon and rising oil prices on Asia’s third-largest economy.

One-month implied volatility, a measure used to price options, fell 34 basis points to 6.17 percent, the lowest since April 20 in Mumbai, data compiled by Bloomberg show. The gauge has dropped 44 basis points this week. The rupee fell 0.2 percent to 63.9750 a dollar.

“The markets are drawing comfort in the short term from a smaller deficit,” said Sandeep Kanihama, a currency analyst at Religare Commodities Ltd. in Noida, near New Delhi. “The gap will be wider in the current quarter due to a reversal in oil prices and potentially poor rains.”

Brent crude has risen about 18 percent since the end of March, which boosts costs for a country that relies on imports for about 80 percent of its oil needs. The government estimates rainfall in the June to September period will be 88 percent of the 50-year average amid the emergence of an El Nino weather pattern, which causes drier weather in Asia. That could result in poor harvests, pushing up food inflation.

The yield on the sovereign notes maturing July 2024, the current 10-year benchmark, rose seven basis points to 8.09 percent, the highest level since November, prices from the RBI’s trading system show. The yield on the bonds due May 2025, the new 10-year security issued last month, increased six basis points to 7.88 percent.