The appreciation in the rupee is likely to continue for some time and it is expected to average at 66.2 against the US dollar in the current financial year. Since the start of this year, the rupee has had a steady appreciation in line with other emerging market currencies, Kotak Institutional Equities said in a research note.
It said the India rupee (INR) has outperformed most of the emerging market pack as, in addition to global ones, domestic factors like the strong political mandate for BJP in UP elections, the passage of GST bill and a hawkish RBI stance have boosted the rupee.
However, it added, the short-term strength may give way to weakness in the latter half of 2017-18 as much of the move has come on the back of record flows, which are unlikely to continue through the year.
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“Even as we expect INR to remain strong in the next 1-2 months, we expect some correction during the rest of 2017-18,” the report said. Several factors like tightening global financial conditions, political and financial uncertainties and geopolitical risks would continue to shape the emerging market forex outlook, even amid relatively weaker dollar, it said.
The rupee may still outperform its emerging market peers, supported by the country’s relatively lower dependence on external trade, RBI’s hawkish stance and relatively strong policy and macro fundamentals.
“INR would find some support from its fundamentals and likely outperform most emerging markets in 2017-18. We expect the INR to average 66.2 against the USD in 2017-2018 within a range of 62.5-67.5,” said the Kotak report. The rupee is currently hovering at 66/USD.