Top Rupee Forecaster Says Bond Opening to Sustain Best Asia Gain

  • ABN Amro sees rally to 65 a dollar by end of month on inflows
  • Rupee's 1.4% climb in September was Asia's best performance

The top rupee forecaster sees the currency maintaining its position as Asia’s best performer after India allowed foreigners greater access to its debt.

“India remains one of the fastest-growing economies in the region,” said Roy Teo, Singapore-based senior foreign-exchange strategist at ABN Amro Bank NV, which had the most-accurate estimates in Bloomberg’s quarterly rankings. “The rupee has the potential to outperform other regional currencies this year on the back of higher inflows.”

The Federal Reserve’s decision not to raise U.S. interest rates helped drive a region-beating 1.4 percent gain in the rupee in September as overseas holdings of local-currency notes climbed for two straight weeks. Teo sees inflows rising after the Reserve Bank of India on Sept. 29 unveiled a plan to raise the cap on foreign ownership of sovereign bonds in phases.

India’s relatively low exposure to China’s economic slowdown and a drop in oil costs has improved the finances of the region’s third-largest economy, which the Asian Development Bank predicts will grow 7.4 percent in 2015, compared with 6.8 percent for China. Exports to China comprise less than 10 percent of India’s total overseas shipments, the lowest ratio among major regional economies, according to Morgan Stanley.

ABN Amro predicts the rupee could rise to 65 a dollar by the end of October, 0.4 percent stronger than its level of 65.2350 in Mumbai on Wednesday. The lender forecasts the currency will retreat to 66 by end-December, Teo said, adding that the Indian central bank could step in to curb gains to shield exporters.

A Bloomberg index shows Indian sovereign bonds earned investors 7.6 percent in local-currency terms in 2015, the region’s top performance, as plunging Brent crude prices helped slow consumer inflation to a nine-month low in August. That’s prompted RBI Governor Raghuram Rajan to cut the benchmark repurchase rate by 125 basis points, including a larger-than-estimated 50 basis point reduction on Sept. 29.

Global investors borrowing in dollars to purchase rupee assets earned 2.4 percent this year, the best carry-trade return in Asia, data compiled by Bloomberg show.

‘Bright Spots’

“The rupee is one of the bright spots in Asia right now and last week’s growth-oriented RBI policy is likely to further attract foreign portfolio inflows,” said Viraj Patel, a London-based currency strategist at ING Groep NV. “The decision on higher debt limits reinforces our view that medium-term fundamentals remain positive.”

ING, which stood fourth in the rupee forecasters’ ranking, sees the currency at 65.50 a dollar by year-end. The median estimate in a Bloomberg survey of analysts is 66.42.

India is in a “good position” compared with other emerging markets, Rajan said Aug. 24, citing reasons such as moderating inflation, low short-term currency liabilities and a narrowing fiscal deficit.

Rupee Has Been Asia's Best Performer Since The End of August

The ceiling on foreign ownership of sovereign notes will be raised to 5 percent of the total amount outstanding by March 2018 in a move that will help attract 1.2 trillion rupees ($18.4 billion) of additional investment, the RBI said. It’s at about 3.8 percent now, according to government estimates.

Overseas holdings of local-currency corporate and government securities rose 17 billion rupees in the two weeks through Oct. 2, the first back-to-back weekly increase since May, data from the National Securities Depository Ltd. show. They’ve climbed another 1.99 billion rupees so far this week.

“In a world of weak global demand and depressed growth, India offers a decent positive story for currency outperformance going forward,” said Nizam Idris, the Singapore-based head of foreign exchange and fixed-income strategy at Macquarie Bank Ltd. “The benign domestic inflation environment adds to the case for investment inflows into India.”

Macquarie, the third-best forecaster in Bloomberg’s rankings for emerging-Asia currencies, predicts the rupee to rise to 65.20 a dollar by end-October.

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