India's Rupee Rallies Most Since October as Fed Seen Going Slow

  • Currency to be one of the best performers in Asia: Schroder
  • Ten-year bond yields drop to the lowest since Nov. 24

India’s rupee rallied the most in two months and sovereign bonds climbed as the Federal Reserve signaled it is in no rush to raise interest rates again after the first increase in almost a decade.

A gauge of expected rupee swings dropped as Fed Chair Janet Yellen followed the central bank’s decision to end an era of unprecedented monetary stimulus with indications that the pace of subsequent rate increases will be “gradual” and in line with previous projections.

The rupee strengthened 0.5 percent, the most since Oct. 23, to 66.42 a dollar in Mumbai, prices from local banks compiled by Bloomberg show. The currency has lost 1.7 percent since the end of October as global funds pared holdings of Indian bonds and stocks in the run-up to the Fed meeting.

“The rupee should be one of the best performers in Asia as it will benefit from India’s good macro fundamentals and a high carry,” said Rajeev De Mello, head of Asian fixed income at Schroder Investment Management Ltd. in Singapore. “The recent decline in oil prices should benefit India and has not been reflected in the currency or bond prices.”

One-month implied volatility in the rupee, a measure used to price options, slumped 44 basis points to 5.82 percent.

Markets Relieved

Indian sovereign bonds advanced, with the yield on the notes due May 2025 falling three basis points to 7.71 percent, the lowest since Nov. 24, according to prices from the Reserve Bank of India’s trading system.

Standard Chartered Plc forecasts the yield, which has climbed seven basis points since Oct. 30, to drop below 7.50 percent by the end of March. The S&P BSE Sensex index of shares jumped 1.2 percent, the most since Nov. 19.

“Markets will be relieved that one of the key events for this year is over,” said Nagaraj Kulkarni, Singapore-based senior Asia rates strategist at Standard Chartered.

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