Rupee Climbs to Two-Month High as Barclays Sees Inflows Resuming

  • India sovereign bonds complete longest run of gains since 2013
  • Currency still Asia's worst in 2016 with 0.9 percent decline

India’s rupee climbed to the highest level since early January on optimism demand for the nation’s assets will pick up after the Federal Reserve scaled back its projection for interest-rate increases.

The U.S. central bank cited risks to global economic growth that have spurred monetary easing in China, Europe and Japan over the past two months, as it adopted a more dovish stance. The rupee remains Asia’s worst performer this year as foreign funds are net sellers of Indian stocks and bonds in 2016 despite purchases in March. Sovereign notes advanced for a sixth day.

The rupee strengthened 0.7 percent to 66.7450 a dollar in Mumbai, taking its gain this month to 2.5 percent, according to prices from local banks compiled by Bloomberg. It rose to 66.6425 earlier, the highest since Jan. 8. The currency has declined 0.9 percent in 2016.

“The calming effect on the markets, improvement in risk appetite and the softening of the dollar will help to see capital flows resume in the short term,” said Mitul Kotecha, the head of Asian foreign-exchange and interest-rate strategy at Barclays Plc in Singapore. “Concern about China, resumption of dollar strength and the Reserve Bank of India’s resistance for gains in the rupee are a combination of factors that will support the downward bias.”

Barclays predicts the currency to drop to 70.5 a dollar by end-2016, Kotecha said. That’s weaker than the rupee’s record low of 68.845 seen in August 2013. Morgan Stanley lowered its year-end estimate to 73 from 70, while predicting a fall to 69 by the end of this quarter, according to a report dated March 13.

Overseas investors have sold $1.1 billion more Indian shares than they bought this year. Foreign holdings of rupee-denominated debt have fallen 98.4 billion rupees ($1.5 billion), data from the National Securities Depository Ltd. show.

The yield on government notes due January 2026 dropped six basis points to 7.51 percent, falling for a sixth day, according to prices from the RBI’s trading system. That’s the longest run of gains for benchmark 10-year debt since April 2013.

The central bank bought 144.09 billion rupees of securities via open-market operations on Thursday, according to a statement.

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