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Rupee Climbs to Six-Month High as Foreigners Boost Bond Holdings

India’s rupee climbed to a six-month high, extending a rally that’s made it Asia’s top-performing currency this year, as foreigners continued their purchases of local bonds ahead of the nation’s inclusion into global debt indexes.

Indian five hundred rupee banknotes are arranged for a photograph in Mumbai, India, on Tuesday, Jan. 30, 2018. Indian Prime Minister Narendra Modi has a tough balancing act in this week's budget: maintaining fiscal prudence or handing out cash to placate rural voters ahead of next year's election. Photographer: Dhiraj Singh/Bloomberg
Indian five hundred rupee banknotes are arranged for a photograph in Mumbai, India, on Tuesday, Jan. 30, 2018. Indian Prime Minister Narendra Modi has a tough balancing act in this week's budget: maintaining fiscal prudence or handing out cash to placate rural voters ahead of next year's election. Photographer: Dhiraj Singh/Bloomberg

India’s rupee climbed to a six-month high, extending a rally that’s made it Asia’s top-performing currency this year, as foreigners continue their purchases of local bonds ahead of the nation’s inclusion into global debt indexes.

The currency gained 0.1% to 82.7250 per dollar on Thursday, the highest since Sept. 4. It is likely to appreciate further, reaching 82.50 by end-June, according to a Bloomberg survey of analysts. 

The rupee has been among the most stable emerging-market currencies this year, leading some traders to speculate that the central bank may have used its $619 billion foreign-exchange reserves to limit the currency fluctuations. The gains don’t suggest any change in the Reserve Bank of India’s policy to curb sharp moves, according to Australia & New Zealand Banking Group.

“The RBI policy overall will not change, they would prevent any sharp moves in the rupee,” said Dhiraj Nim, economist and forex strategist at Australia & New Zealand Banking Group in Mumbai. “If there is an appreciation pressure, they would absorb that money that flows in.”

Rupee Climbs to Six-Month High as Foreigners Boost Bond Holdings

Foreign inflows of $5 billion into rupee-denominated bonds have contributed to the currency’s 0.5% gain this year, ahead of India’s addition to global debt gauges. The nation’s bonds are also on watch for inclusion into FTSE Russell’s EM bond gauge, which comes up for a review at the end of the month. 

A combination of “corporate repatriation flows, heavy inflows in the debt market and also weakness in the dollar,” is driving the rupee higher, said Anindya Banerjee, currency analyst at Kotak Securities.

(Updates with analyst comment in the fourth paragraph)

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