Top Rupee Forecaster Sees Rally Stalling as India Flows Slow

  • Standard Chartered’s end-December forecast is 64.50 per dollar
  • Like rupee against Taiwan dollar, Philippine peso: Devesh

It’s only April and the rupee has already run its course for the year, according to the most-accurate forecaster for the Indian currency.

The rupee, which traded at 64.0850 per dollar in Mumbai Thursday after touching its strongest level since August 2015 the previous day, will end the year at 64.50, according to Standard Chartered Plc, which had the most accurate rupee estimates in Bloomberg’s quarterly rankings. The U.K.-based bank’s end-June forecast is 65.

“The likely slowing of portfolio inflows, continued intervention by the central bank amid higher real-effective exchange rates, and wider trade deficits given seasonal factors could slow the pace of further rupee appreciation,” said Divya Devesh, an Asia FX strategist at Standard Chartered in Singapore. Year-to-date gains “do look quite sharp on a historical basis, and as such, some consolidation is expected in the near-term,” he said.

The rupee rallied 4.7 percent between January and March, the most for any first quarter since 1975, as foreign investors poured over $12 billion into local stocks and bonds amid improved appetite for emerging-market assets and as a thumping win for Prime Minister Narendra Modi’s party in key state elections boosted bets for more economic reforms. It is up 6 percent in 2017.

Standard Chartered’s estimates are far more optimistic than consensus, with the median estimates in Bloomberg surveys showing the Indian currency will slide to 66 per dollar by the end of June and to 67 by Dec. 31.

“The powerful rally has reflected a mix of sustainable and transitory factors,” said Devesh. “Carry will likely play a more important role in driving total returns from here.’’

Borrowing in dollars to purchase rupee assets has earned 7.7 percent so far this year, the highest carry returns in Asia, data compiled by Bloomberg show.

Devesh favors the rupee against some of the “low-yielders in Asia” like the Taiwan dollar, which he said will be more sensitive to a rising greenback, and also the Philippine peso, where the current-account deterioration continues to weigh on the exchange rate.

Foreign funds, who poured $6.7 billion into Indian stocks in the last two months, are net sellers of $158 million of shares so far in April, exchange data compiled by Bloomberg show.

Overseas holdings of rupee-denominated government and corporate bonds jumped by 360 billion rupees ($5.6 billion) in the January-March period, according to data from the National Securities Depository Ltd. Inflows into the local debt market will be capped at $5 billion to $10 billion during the 12 months ending March 2018, analysts at ratings firm ICRA Ltd. wrote in an emailed report on Wednesday.

“Even though we have an overall constructive view on the rupee, we think spot appreciation might not be as strong as the first quarter,” he said. “At the same time, the Reserve Bank of India will likely continue to add to its reserves, particularly if imports rise further driven by higher oil prices.’’

Read: Rupee Hits Seasonality Wall After Best First Quarter Since 1975

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