The Indian rupee strengthened in January on foreign inflows, global bond inclusion and growth optimism even as other Asian peers depreciated.
The rupee appreciated by 0.23% during the month compared to a 1.27% rise in the Dollar Index, according to Bloomberg data.
The uptick is mainly fuelled by the government bond inclusion in the JPMorgan Index. Earlier this month, Bloomberg Index Services also proposed to include Indian bonds in its emerging market local currency indices starting September.
Foreign investors have been increasingly increasing their government bond holdings. In the last two months of 2023, FIIs invested Rs 33,162 crore in government securities. So far in January, overseas investors have mopped up debt worth Rs 17,491 crore. The inflows are also bolstered by expectations of the Modi government returning to power after the general election.
The local currency should continue to be in the Rs 82.70–83.40 range till June as government bond inclusion in the JPMorgan Index should bring in good inflows, which should take the rupee up to Rs 82.50, according to Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.
As market expectations diminished for early Federal Reserve rate cuts in March, the Dollar Index and U.S. 10-year yields saw an uptick, causing Asian currencies to decline against the dollar. The Chinese Yuan Renminbi Offshore moved from 7.10 to 7.19, alongside other Asian currencies such as the Indonesian Rupiah and South Korean Won.
Amid these fluctuations, the Indian rupee stood out as a beacon of stability, initially moving from Rs 83.40 to Rs 82.77, Bhansali said.
Post-budget, the Indian rupee is anticipated to experience minimal impact. However, if the Red Sea issue persists, there is a looming threat to exports, which could potentially lead to a slight depreciation trend, according to him.
“Inflows have been good enough for the RBI to keep buying dollars and ensure stability in the currency pair. The Houthi strike in the Red Sea could have dwindled our exports, but at such a time, RBI ensured protection for exporters by buying dollars and ensuring no losses to exporters on the rupee front after they had to pay higher shipping freights,” he said.
India’s forex reserves have also grown from the lows of around $529 billion to $618 billion, suggesting that inflows have been accumulated by the RBI. Concerns still prevail about the FDI flows and geopolitical risks cannot be ignored. “We expect USD-INR to trade in the Rs 82.80–83.35 range for some more time,” said Kunal Sodhani, vice president of Shinhan Bank Co.
According to Jateen Trivedi, vice president of research at LKP Securities Ltd., the persistent range-bound movement in rupee, spanning roughly between Rs 83.05 and Rs 83.17 over the past week, indicates a level of stability. He sees resistance in the Rs 82.80–82.90 zone and broader price range between Rs 82.80 and Rs 83.30.
