Indian Rupee Heads for Best Week Since January on Rate Outlook
 

India’s rupee headed for the best week since January on speculation the central bank will raise borrowing costs a third time this year to curb inflation, making local assets more attractive to investors seeking higher yields.

The currency climbed for a third day to a one-month high after the government said this week that inflation accelerated in May to near the fastest pace in 17 months. The Reserve Bank of India may raise its benchmark rate before a scheduled July 27 policy meeting, Chia Woon Khien, Singapore-based head of currency and rates strategy for Asia excluding Japan at Royal Bank of Scotland Group Plc.

“The chances of an inter-meeting rate hike are very high,” Chia said. “Because of that, the rupee will look attractive. In this kind of global environment, anyone hiking rates will be seen in a positive light. India is also raising rates from a position of strength.”

The rupee gained 1.5 percent this week to 46.10 per dollar as of 9:26 a.m. in Mumbai, according to data compiled by Bloomberg. It rose as high as 46.09, the strongest level since May 19. It may be traded between 46.50 and 46.65 today, Raghuvanshi predicted.

Offshore forwards indicated the currency will trade at 46.58 to the dollar in three months, compared with expectations of 47.29 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

Annual wholesale-price inflation was 10.16 percent in May, the commerce ministry said June 14, compared with an average 5.3 percent in the past decade. The central bank raised its key rate by a quarter percentage point each in March and April to 3.75 percent.

Overseas investment in India’s bonds jumped 88 percent this year and touched a record $14.4 billion on June 8, data from the Securities and Exchange Board of India show.

The rupee also rose as the Bombay Stock Exchange’s Sensitive Index, a benchmark for the nation’s shares, advanced for an eighth day, set for this year’s biggest weekly gain.