Mumbai: The rupee climbed for a fourth day on Wednesday as a brighter growth outlook after the ruling coalition’s decisive election victory is expected to attract more capital inflows in coming months.
The partially convertible rupee ended at Rs47.47/48 per dollar, near the day’s peaks and 0.6% above its previous close of Rs47.75/77. It has gained 4.8% in the past four days
Those gains have made it the second strongest Asian currency against the US dollar this year with a rise of 2.6%. One week ago, it was among the weakest Asian currencies.
Barclays Capital and Standard Chartered Bank joined a growing list of research houses that have upgraded targets for the rupee because of improved growth and investment prospects.
“We feel that the decisive victory of the United Progressive Alliance amid signs of economic expectations bottoming, has tilted the scale in favour of India,” Standard Chartered economists Anubhuti Sahay and Priyanka Chakravarty said.
The rupee would meet resistance at 47.05/15, its 55-week moving average, if the current rally extended, Standard Chartered said, but it expects it to end the year at 45.50.
The rupee has risen 10% after hitting a lifetime low of Rs52.20 in March on a revival in capital inflows into the stock market. Foreign investors have been net buyers of more than $5 billion of shares since mid-March, including more than $1 billion on Tuesday alone.
Prime Minister-elect Manmohan Singh will formally seek on Wednesday the approval of India’s president to form a government, a party spokesman said.
One-month implied volatilities in the rupee fell to 12% from 13.8% on Tuesday.
Forwards market indicated the rupee would weaken from current spot rates, with six-month offshore non-deliverable forwards pricing in a 1.2% decline.
Sailesh Jha, senior regional economist at Barclays Capital, said the central bank will allow a faster appreciation of the rupee as its shifts from an easy to a neutral policy stance in the latter half of 2009.
“From an exchange rate management perspective, we expect the RBI to tolerate a 14% real effective exchange rate appreciation in the second half of 2009,” Jha said, who expects the rupee to end 2009 at 45 per dollar.
Barclays expects capital flows in 2009/10 to rise to $51.7 billion from $10.1 billion in 2008/09, driving the rupee higher.