Rupee Advances Most in a Week on Bets Fed to Delay Rate Increase

Updated on
  • China factory data adds to concern about global economy
  • Indian 10-year sovereign bonds rise as GDP growth slows

India’s rupee advanced the most in a week on speculation the U.S. Federal Reserve will refrain from raising interest rates this month as the global economy remains fragile.

China’s official factory gauge fell to the lowest reading in three years, data showed on Tuesday, spurring concern a slowdown in Asia’s largest economy is deepening. Economists shifted their forecasts for the first increase in U.S. borrowing costs since 2006 to after the Sept. 17 meeting, according to a majority of those surveyed by Bloomberg News. A gauge of dollar strength declined for a second day.

The rupee strengthened 0.4 percent to 66.2175 a dollar in Mumbai, the most since Aug. 25, according to prices from local banks compiled by Bloomberg. Its three-month implied volatility, a gauge of expected swings used to price options, dropped 20 basis points to a three-week low of 8.04 percent. Higher U.S. rates reduce the allure of emerging-market assets and can lead to capital outflows.

“The expectations for a Fed hike seem to have been pushed ahead and that’s helping the rupee,” said Gaurav Sharma, a senior currency analyst at Religare Commodities Ltd. in Noida, near New Delhi. “The disappointing data from China has added to concerns about global growth.”

Last month’s turmoil in global markets, sparked by China’s surprise devaluation of the yuan on Aug. 11, rattled investors and boosted speculation the Fed will delay tightening. The rupee sank 3.5 percent in August, the most in two years.

India’s economy expanded 7 percent in the April-June quarter from a year earlier, slowing from 7.5 percent in the previous period, official data showed after the close of markets on Monday.

The yield on sovereign bonds due May 2025 fell three basis points on Tuesday to 7.75 percent in Mumbai, according to prices from the central bank’s trading system. The notes climbed for a second month in August.