Rupee Climbs to One-Month High as Oil Boosts Deficit Optimism

  • Brent crude prices slump to the lowest level since 2004
  • ANZ, Morgan Stanley see rupee outperformance in Asia in 2016

India’s rupee climbed to a one-month high on optimism plunging prices of Brent crude will help cut the nation’s current-account deficit.

Goldman Sachs Group Inc. estimates the shortfall in the broadest measure of trade will be 1.1 percent of gross domestic product in the fiscal year ending March 2016, compared with 1.3 percent in the previous period, according to a report this month. Australia & New Zealand Banking Group Ltd. and Morgan Stanley are among global banks predicting that the rupee will outperform its Asian peers in 2016.

“Oil prices at multi-year lows will help keep the deficit in check and that is a huge positive for the rupee,” said Gaurav Sharma, a senior currency analyst at Religare Commodities Ltd. in Noida, near New Delhi. “Also, the Federal Reserve’s meeting is now behind us.”

The rupee strengthened for a fifth day, rising 0.1 percent to 66.3525 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It climbed to 66.2625 earlier, the highest level since Nov. 23. The currency has advanced 0.5 percent in December, paring its decline for 2015 to 5 percent.

Brent crude slumped to the lowest level since 2004 on Monday, lowering costs for India, which imports about three quarters of its oil.

The yield on sovereign bonds due May 2025 rose five basis points, the biggest increase since Sept. 7, to 7.77 percent, according to prices from the Reserve Bank of India’s trading system. The yield rose on speculation the government may miss its budget deficit target of 3.5 percent of the GDP for the next fiscal year starting April 1, said Soumyajit Niyogi, interest rate strategist at SBI DFHI Ltd.

The government may have to reassess its budget deficit projections for the next fiscal year if growth slows, the Finance Ministry said in its mid-year review published Friday.

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