Rupee Jumps to 1-Month High as Global Funds Snap Up India Assets

  • Foreign holdings of local stocks and bonds climb in July
  • Risk-on global sentiment adding to currency strength: RBL Bank

India’s rupee advanced to a one-month high as demand for local assets picked up amid optimism the U.K.’s vote to exit the European Union won’t have a lasting effect on the South Asian nation’s markets.

Overseas holdings of Indian debt have risen for five days, with their increase on Wednesday the biggest since March 30, National Securities Depository Ltd. data show. Local shares have attracted a net $262.4 million in the first three days of this week, the most since the five-day period ended June 3. Speculation that global central banks will take steps to stem the fallout from the Brexit has helped emerging-market equities and currencies recoup losses seen in the immediate wake of the June 23 referendum.

The rupee climbed to as high as 66.8725 a dollar, the strongest level since June 10, before closing 0.2 percent higher at 66.9150 in Mumbai, prices from local banks compiled by Bloomberg show. The currency has risen 0.9 percent this month, paring its 2016 decline to 1.1 percent. Sovereign bonds have gained in July and the S&P BSE Sensex index of shares is on course for a fifth straight monthly advance.

“Gains in equities amid a global risk-on sentiment have added to the rupee’s strength,” said Rohan Lasrado, Mumbai-based head of foreign-exchange trading at RBL Bank Ltd. “The resumption of inflows into debt is also keeping the rupee well supported.”

Foreign holdings of rupee-denominated government and corporate bonds have increased by about 50 billion rupees ($748 million) in July, after falling in each of the previous two months, NSDL data show. They jumped 22.8 billion rupees on Wednesday. Equities have lured inflows of $319.2 million so far this month.

A revival in monsoon rains has improved the outlook for inflation and interest rates in Asia’s third-largest economy, sparking a rally in sovereign bonds that has driven the benchmark 10-year yield to a three-year low. Mounting speculation that India’s yet-to-be-named new central bank chief will be more aggressive in cutting interest rates has fueled more gains.

The yield on notes due January 2026 was little changed at 7.29 percent in Mumbai, prices from the central bank’s trading system show. It has fallen 16 basis points this month, with its close on Wednesday being the lowest for benchmark 10-year debt since June 2013.

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