The Indian rupee surged to an eight-month peak, while sovereign bonds advanced as investors expressed optimism that the country will vote in a new government that will revive the flagging economic fortunes.
The left-wing Bharatiya Janata Party has taken the lead in the latest opinion polls before April elections, as voters plan to vote out the ruling Congress for its economic mismanagement and graft scandals.
Foreign investors have sunk in $3.6 billion into Indian stocks and bonds in March, according to market data.
“Right now there’s euphoria and the rally is being driven by sentiment,” said Paresh Nayar, the Mumbai-based head of currency and money markets at FirstRand Ltd. “The central bank will be closely monitoring the situation because if there’s any unfavorable election outcome, they will have to roll out the ammunition to stabilize the markets.”
The rupee was up 0.5 percent at 60.1550 a dollar at noon trading in Mumbai, according to Bloomberg data. It hit an intraday high of 60.1350, its highest level since 30th July.
“Gains beyond 60 will be tough, and any move past that level will be a trigger for an extended rally in the Indian currency,” said Nayar.
However, Barclays Plc urged investors to be cautious on the currency, amid unease that April’s elections won’t result in a clear winner. Other analysts expect the rupee to stagnate at 59, but could shift broadly depending on who wins the elections.
The one-month implied volatility, which measures possible moves of the exchange rate used to value options, plummeted 0.05 percent, or five basis points, to 9.10 percent.
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