India’s Rupee Jumps as Government Signals it will Contain Budget Deficit

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India’s Rupee Jumps as Government Signals it will Contain Budget DeficitThe India’s rupee surged to its highest level in August while equities surged on confidence that the government is working harder to contain the budget deficit.

The rupee rose 0.1 percent to 60.6850 per dollar at the close of trading in Mumbai. It had earlier appreciated to 60.6575, its highest level since July 31. Indian financial markets were closed on Monday for a public holiday. The rupee gained 0.8 percent last Friday (August 14).

“The overall bullish sentiment across asset classes is driven by expectations the government will take steps to strengthen the economy,” Ankur Jhaveri, a Mumbai-based co-head of currency and rates at Edelweiss Financial, told Bloomberg News. “The rupee gains are driven by inflows into equities.”

The S&P BSE Sensex gauge of Indian shares rose by up to 0.5 percent on Tuesday after Finance Minister Arun Jaitley signaled that he plans to shrink the budget shortfall to 4.1 percent of the GDP, the lowest level since 2008, in the year ending March 2015.

The one-month implied volatility in the rupee, an index of expected swings in the exchange rate used to set prices to options, advanced 0.03 percentage point or three basis points, to 7 percent.

Meanwhile, the ruble plunged as Ukrainian troops edged closer towards reclaiming the rebel-held city of Luhansk while Russian government called off a bond auction. It later cut its losses after Kremlin announced that Ukrainian and Russian presidents are scheduled to meet on Aug. 26 in Belarus. The currency fell 0.2 percent to 36.1320 per dollar as of 6 p.m. Moscow time. It had earlier declined to 36.2125, the weakest level in a week. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Yashu Gola at yashu@forexminute.com