Indian rupee rallies on dollar inflows, bullish outlook

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Indian rupee rallies on dollar inflows, bullish outlook
Strong investor sentiment has led to one round of appreciation in the rupee, which may continue for some more time but is not likely to sustain.

Dubai - The new found optimism around the currency has opened the gates to over $2.4b of inflows into equities in March.

by

Issac John

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Published: Wed 10 Apr 2019, 8:00 PM

Last updated: Thu 11 Apr 2019, 9:40 AM

Strong dollar inflows, a weakness in the US currency, bullish economic forecast by the International Monetary Fund (IMF) and typical pre-poll investor sentiments drove Indian rupee to 69.09 (18.82 versus dirham) against the greenback, up 21 paise, on Wednesday ahead of general election starting today, but experts said the currency's rally would not sustain.
The Indian currency, which was among the worst performers in 2018, opened strong at 69.26 (18.87 against dirham) at the interbank forex market then gained further ground and touched 69.09 (18.82 versus dirham) amid a weak opening in domestic equities, displaying gains of 21 paise over its last close.
The rupee on Tuesday had strengthened by 37 paise to close at 69.30 (18.88 versus dirham) against the dollar. Since February, the rupee has surged more than three percent - from levels above 71 against the dollar, to about 69.1 on Wednesday - the strongest level since last August.
While selling of the dollar by exporters supported the rupee, IMF's bullish growth outlook for the Indian economy also added strength to the local currency.
According to the IMF, India is projected to grow at 7.3 per cent in 2019 and 7.5 per cent in 2020, supported by the continued recovery of investment and robust consumption, thus remaining the fastest growing major economy of the world.
The recent consistent rupee rally comes amid World Bank report that remittances to India surged to $79 billion in 2018, ranking India again as the world's top recipient country.
The currency appreciation was also helped by foreign investors (FIIs) who remained net buyers in the capital markets, putting in 12.12 billion rupees on a net basis on Tuesday.
According to a recent note by research firm Capital Economics, the rupee has outperformed all other emerging market currencies this month, in part due to recent opinion polls showing that the ruling Bharatiya Janata Party is on course to win.
Experts said the new found optimism around the currency has opened the gates to over $2.4 billion of inflows into equities in March.
Strong investor sentiment has led to one round of appreciation in the rupee, which may continue for some more time but is not likely to sustain. The fact that crude oil has also remained largely stable is also helping the rupee inch up. Most analysts are now expecting the rupee to stablise around 68.70 (18.72 versus dirham) to 68.40 (18.63 against dirham) levels in the short-term, in the best-case scenario.
In 2018, rupee plunged from 63 (17.16 versus dirham) to 74 (20.16 against dirham) per dollar and has returned to 70 (19.07 against dirham). However, for major part of the year, it remained between 67-72. Analysts believe if all the external factors remain unchanged, the rupee would not sustain the current uptrend as India, one of the biggest importers of crude oil, will continue see a surge in consumption. There is also not much possibility that   Indian exports would jump to enable India getting substantial foreign exchange.
- issacjohn@khaleejtimes.com


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