India’s rupee strengthened for a second day this week as overseas investors increased holdings of local bonds to benefit from a widening yield advantage. Funds based abroad added $716 billion to investments in rupee-denominated corporate and government debt last week, the most since January, data published by the Securities & Exchange Board of India show. The extra yield on India’s two-year notes over similar-maturity U.S. Treasuries widened to a record 7.52 percentage points this week after the central bank raised borrowing costs on May 3 for the ninth time since March 2010. “We still expect the rupee to appreciate from here and the widening interest-rate differential is supporting that view,” said Vivek Rajpal, a Mumbai-based strategist at Nomura Holdings Inc. “Other fundamentals including economic growth and the trade balance are supportive for the rupee too.” The Indian currency rose 0.1 percent to 44.71 per dollar as of 10:43 a.m. in Mumbai, according to data compiled by Bloomberg. It is still the worst performer this month among Asia’s 10 most- traded currencies with a 1.1 percent loss. The rupee will appreciate to 43.5 by Sept. 30, Nomura predicts. Offshore forwards indicate the rupee will trade at 45.43 to the dollar in three months, compared with expectations of 45.49 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars. To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net. To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.

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