Fed’s Interest Rate Retention Sends Rupee The Most in a Month

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Fed’s Interest Rate Retention Sends Rupee The Most in a MonthThe Indian rupee advanced at the fastest pace in a month after the Federal Reserve said it will retain the record low interest rates even when it phases out the bond-buying program, spurring demand for assets from emerging economies.

The rupee rallied 0.8 percent to trade at 59.9262 per dollar in midmorning trading in Mumbai, its largest advance since May 16. The MSCI index of stocks rose 1.3 percent to a six-month high. The Indian currency had earlier plunged to 60.5413 on Wednesday, its lowest level in seven weeks, over fears that inflation will increase due to surging oil prices and that trade deficit will worsen.

Fed Retains Record Low Interest Rates

The rupee was also the fastest gainer in Asia, where currencies rose on news that the Fed’s Open Market Committee said it won’t cut the current interest rates after it reduced its monthly bond-purchase program by $10 billion to $35 billion as it looks to return the economy back to normal.

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“The FOMC statement on interest rates is clearly positive for the rupee,” Ankur Jhaveri, a Mumbai-based co-head of currency and rates at Edelweiss Financial Services Ltd told Bloomberg. “A stable and improving U.S. economy is good for India’s exports and inflows.”

The rupee’s one-month implied volatility, which measures the expected shifts in the exchange rate used to assign to assign prices to options, fell 26 basis points to steady at 8.27 percent. 10-year bonds in Mumbai accelerated, with yield declining 0.03 percentage point, or 3 basis points, to 8.64 percent.

The 3-month offshore non-deliverable forwards rose 0.8 percent to 60.76 per dollar. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com