Rupee in biggest quarterly gain since ’12 on economy

Inflation eased in February and authorities forecast economic growth will pick up from a decade-low and deficits will shrink in the fiscal year ending March 31. Foreign funds have pumped $9.3 billion into Indian shares and bonds this year, the most among eight Asian markets tracked by Bloomberg, as opinion polls show the main opposition party winning the most seats in elections starting next month while falling short of a majority.

The rupee gained 3.2 per cent since December 31 to 59.89 per dollar in Mumbai, prices from local banks compiled by Bloomberg show. The currency rose 0.7 per cent on Friday and touched 59.6850, the strongest since July 30. It has rebounded 15 per cent from a record low in August. Local currency and bond markets are shut March 31 for a public holiday.

“It’s been a good quarter for the rupee as economic fundamentals have improved,” said Andy Ji, a strategist at Commonwealth Bank of Australia in Singapore. “I don’t see the currency gaining much more before the elections as there’s uncertainty if the polls will deliver a clear mandate to either party.” The rupee’s advance is partially attributable to the “credibility and transparency” brought to monetary policy by Reserve Bank of India Governor Raghuram Rajan, who took office in September, according to Commonwealth Bank’s Ji. Rajan, a former International Monetary Fund chief economist who’s credited with presaging the 2008 global financial crisis, has raised borrowing costs three times to contain price pressures.

He will keep the benchmark repurchase rate unchanged at eight per cent at an April 1 review, according to 34 of 36 economists in a Bloomberg survey. Two see an increase to 8.25 per cent. The government will start the new fiscal year with a cash surplus of one trillion rupees and will borrow Rs3.68 trillion of itsRs 5.97 trillion target by the end of September, Economic Affairs Secretary Arvind Mayaram told reporters in New Delhi on Friday.

The yield on the 8.83 per cent government bonds due November 2023 fell two basis points this quarter and one basis point today to 8.80 per cent, according to the central bank’s trading system.

Consumer-price inflation eased to a two-year low in February and wholesale-price gains slowed to the least in nine months, official data show. The current-account deficit will be kept below $40 billion this fiscal year, compared with a record $88 billion in the previous 12 months.