Rupee Forwards Climb to Three-Week High as Fed Seen Going Slow

BloombergBusiness – India’s rupee forwards climbed to a three-week high 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 the most in a month 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.

One-month offshore non-deliverable rupee forwards rose 0.3 percent to 66.93 a dollar as of 11:34 a.m. in Mumbai, according to data compiled by Bloomberg. The contracts advanced to 66.68 earlier, the strongest since Nov. 26. In the spot market, the rupee gained 0.1 percent to 66.66 a dollar, prices from local banks compiled by Bloomberg show. The currency has lost 2.1 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.”

The rupee’s one-month implied volatility, a measure used to price options, slumped 39 basis points 5.87 percent, the biggest decline since Nov. 20.

Markets Relieved

Indian sovereign bonds were steady, with the yield on the notes due May 2025 at 7.74 percent, according to prices from the Reserve Bank of India’s trading system. Standard Chartered Plc forecasts the yield, which has climbed 10 basis points since Oct. 30, to drop below 7.50 percent by the end of March.

“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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