Rupee Swings Drop to Lowest Since August as India Inflows Surge

  • Global funds' holdings of local bonds, shares climb this week
  • Data Thursday showed India's trade deficit narrowed in Sept.

A gauge of expected swings in India’s rupee retreated to a two-month low and posted a fifth weekly decline as foreign investors snapped up the nation’s assets.

Overseas holdings of rupee-denominated debt increased 131.1 billion rupees ($2 billion) in the last four days, the biggest weekly increase since August 2014. That’s after India granted global funds greater access to sovereign bonds and allowed them to buy notes issued by state governments for the first time. Foreigners have also bought a net $122.8 million of local shares this week through Wednesday, the latest exchange data show.

The rupee’s one-month implied volatility, used to price options, dropped 24 basis points this week and six basis points on Friday to 6.44 percent in Mumbai, data compiled by Bloomberg show. It slid to 6.4250 earlier Friday, the least since Aug. 12.

“There doesn’t appear to be any near-term risk of sharp rupee weakness,” said R. K. Gurumurthy, Mumbai-based treasurer at Lakshmi Vilas Bank Ltd. “The other key factor for the decline in volatility is the comfort that India’s macroeconomic fundamentals are providing.”

Optimism around local assets is stemming from India’s relatively low exposure to China’s economic slowdown, a drop in oil costs that has improved the finances of Asia’s third-largest economy and increasing odds that the Federal Reserve won’t raise interest rates this year. India’s trade gap narrowed to $10.5 billion in September, data showed Thursday.

In the spot market, the rupee fell 0.1 percent from Oct. 9 and was little changed on Friday at 64.8150 a dollar, paring its gain this month to 1 percent. It rallied 1.4 percent in September, the best performance among 24 emerging-market currencies tracked by Bloomberg.

The yield on government notes due May 2025 rose two basis point on Friday and this week to 7.56 percent, according to prices from the central bank’s trading system. That’s within five basis points of its close on Oct. 5, which was the lowest for benchmark 10-year debt since July 2013.

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