Mumbai: Credit Suisse Group raised its forecast for the Indian rupee on speculation that economic growth will drive overseas demand for the nation’s stocks.
The rupee is the fourth-best performing currency in the world this year, rising 7.4%, as India has grown at the second- fastest pace among the world’s 20 biggest economies.
The bank also predicts India’s currency will extend gains from near the highest in nine years on bets that the Reserve Bank of India (RBI) will allow it to strengthen to help curb inflation.
“The rupee will appreciate due to the capital flows,” Nilesh Jasani, head of research at Credit Suisse’s Indian unit, said in a telephone interview on 7 May. “The other reason is the central bank’s decision, or maybe its implicit policy, to use a slightly stronger rupee to tackle inflation.” The rupee will advance to 40.5 against the dollar by March next year compared with an earlier estimate of 43.5, Jasani said.
The rupee fell 0.9% to 41.26 against the dollar as of the 5pm close in Mumbai. This is the currency’s weakest since 23 April. It rose as high as 40.545 on 7 May, the strongest since May 1998.
Predictable rise: The Credit Suisse headquarters in Zurich. The bank has revised its forecast for the rupee after stock exchange data showed that global funds were net buyers of Indian shares by $1.52 billion.
Credit Suisse’s forecast revision comes after stock exchange data showed global funds bought $1.52 billion (Rs6,232 crore) more of Indian shares than they sold last month. They sold $243 million more of equities than they purchased in March.
The Bombay Stock Exchange’s Sensitive Index gained a fourth week through 4 May on optimism a government report will show that economic growth accelerated in the fiscal year ended 31 March. The Central Statistical Organization on 7 February raised its growth forecast for the period to 9.2%.
The rupee may rally for a 10th consecutive week, the longest rally since August 2002, on speculation that RBI won’t sell the currency to help exporters. India’s inflation rate slowed to 5.77% in the week ended 21 April, from 6.09% the previous week. A stronger rupee can help quell inflation by making imports cheaper.
Inflation is being fuelled by a combination of rising demand for commodities and supply constraints, finance minister P. Chidambaram said on 8 May.
Any gains in the currency may be tempered by speculation that investors will pull out of investments in riskier assets in favour of safer US dollar-denominated assets, Jasani said.
The threat to the rupee forecast “could be the strength in dollar globally against all major currencies,” he said.