Just five weeks ago rupee was Asia’s worst-performing currency, but developments in the runup to Lok Sabha elections 2019 have led to a drastic turnaround.
The rupee has now become Asia’s best-performing currency. Incidents over the past few weeks have fuelled the fresh development.
Improvement in Prime Minister Narendra Modi’s chances of securing a second term and the recent eruption in tension between India and Pakistan are two prime reasons behind the rupee’s appreciation.
According to Bloomberg, increased optimism in local shares and debt are ensuring robust flows, which have shored up carry-trade returns on the rupee to the highest in the world last month.
An economist told the publication that the value of the rupee will increase further if Modi wins a second term. At present, the value of rupee stands at 68.82 against the US dollar.
The expert further said that the Indian rupee could rally to 67 per dollar by the end of June.
On March 18, foreign investors bought a net of $3.3 billion shares and raised holding of bonds by $1.4 billion in the month, added the report.
Besides, borrowing in dollars to purchase rupee assets has also helped in the recovery over the past one month.
Another analyst said the market is expecting a Modi victory and there are no other factors to explain the sudden change in mood.
A currency strategist told the publication that global conditions including a dovish stance adopted by the US Federal Reserve and European Central Bank (ECB) have become more supportive.
Besides, increase confidence in BJP’s prospects and recovery in portfolio flows have been some of the key drivers.
The three-month implied volatility, which is a measure of expected money movements, fell to 5.87 per cent on Friday and is the lowest reading since August.
Analysts expect the rupee to remain “resilient” in the near future and a win for the BJP-led coalition will be a positive development for the rupee.