Rupee volatility declines to four-month low on RBI intervention

The rupee has gained 0.8% this year, the third-best performance in Asia

A gauge of expected swings in the rupee fell to a four-month low on speculation the central bank will keep intervening to maintain stability in the currency.

Bank of America Merrill Lynch predicts the monetary authority will buy $62.5 billion in the next 12 months to keep the rupee competitive, economist Indranil Sen Gupta said in an April 9 interview. The nation's foreign-exchange reserves have climbed to a record $343 billion, according to Reserve Bank of India (RBI) data. The rupee has gained 0.8 per cent this year, the third-best performance in Asia.

"The RBI's constant intervention has ensured the rupee's stability," said Anindya Banerjee, a currency analyst at Kotak Securities Ltd in Mumbai. "The central won't blink on intervention as it seeks to build reserves and protect the rupee's relative strength."

One-month implied volatility fell 16 basis points, or 0.16 percentage point, to 5.76 per cent in Mumbai, data compiled by Bloomberg show. It declined to 5.71 per cent earlier, the lowest level since December 12. In the spot market, the rupee dropped 21 paise to 62.51 a dollar, a one-week low.

The central bank bought $7.87 billion in the currency market in February after purchasing $12.1 billion in January, which was the most in seven years, RBI data show.

The yield on government bonds maturing in July 2024 was little changed at Friday's closing level of 7.80 per cent, which was the highest for the benchmark 10-year bonds since March 16, prices from RBI's trading system show.