Rupee volatility surges most in 10 months as outflow risks rise

Mumbai, June 15: A gauge of expected swings in India’s rupee headed for its biggest twoday jump since August amid signs demand for local assets is waning as anxiety about global central bank meetings and a potential British exit from the European Union grips investors.

Foreign funds cut holdings of rupee-denominated bonds by `3.01 billion ($44.8 million) on Tuesday, taking outflows for June to `20.7 billion, data compiled by Bloomberg show. Their purchases of Indian stocks slowed to $244.3 million last week, from $441.1 million in the previous five days. Growing support for Britain to leave the EU ahead of a June23 vote is spurring risk aversion, with investors also watching the US Federal Reserve’s policy decision on Wednesday, followed by Thursday’s reviews in Japan and the UK.

“There’s just too much uncertainty around global events,” said Navin Raghuvanshi, a Mumbai-based foreign-exchange trader at DCB Bank .“Even foreign investors have been as good as net sellers in local markets.”

The rupee’s one-month implied volatility, used to price options, climbed 31 basis points to 6.81% as of 11.44 am in Mumbai, according to data compiled by Bloomberg. That took its two-day advance to 101 basis points, the most in such a period since last August. The currency rose 0.2% to 67.15 a dollar in the spot market, halting a four-day, 0.9% decline.

Even so, when adjusted for price swings, the rupee has been the best-performing carry trade in the past year after the Indonesian rupiah among 23 emerging markets tracked by Bloomberg, and that’s a reason some investors including Alliance Bernstein are sticking with it .“In Asia, there aren’ t many currencies that offer decent carry, so we’ re content to accept the volatility of the rupee for the carry on offer,” Brad Gibson, a Hong Kong-based portfolio manager for Alliance Bernstein, which oversees $487 billion globally, said in an interview .“While we are not strongly positive on the bond markets at these levels, the currency in terms of the carry is probably one of the safest in emerging markets.”

Bloomberg