Rupee May Return Near Pre-Pandemic Levels by March, Nomura Says

The Indian rupee is set to recover by March to levels seen before the coronavirus pandemic, thanks to a rare current account surplus and expectations that the central bank may be more tolerant of a stronger currency, according to Nomura Holdings Inc.

Nomura expects the rupee to bounce back to 72 per dollar by end-March, a level last seen in February. It sees sluggish oil prices to act as a tailwind for the net oil-importing nation, setting it on course to record its first current-account surplus since 2004.

“We see the rupee as an outperformer versus other high yielders,” said Dushyant Padmanabhan, strategist at Nomura Holdings in Singapore. The rupee is “placed quite well – the balance of payment improvement has been quite dramatic, and continues to benefit from the recent drop in oil prices.”

India’s currency rose from a two-month low last week ahead of U.S. election results to 74.3725 per dollar on Wednesday. The rupee is Asia’s worst performer with a year-to-date loss of 4%. Traders have blamed heavy currency intervention by the Reserve Bank of India, though the nation’s economic outlook has also been blighted by the region’s biggest virus outbreak.

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+5% Change in MSCI World Index of global stocks since Wuhan lockdown, Jan. 23

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4.​7% Global GDP Tracker (annualized), Sept.


Padmanabhan sees the central bank changing its approach, especially as the broader risk-on sentiment after the U.S. election helps. “There are some reasons to expect the RBI to taper intervention – such as the already-elevated reserves and focus on transmission,” he said.

Signs of an economic recovery are also supporting the case for the rupee’s appreciation. The manufacturing purchasing managers index rose to its highest in about a decade last month, while foreign-direct investments surged 13% in the April-August period from a year ago.

Not everybody shares Nomura’s optimism. ICICI Bank Ltd.’s sees the rupee closer to 74 per dollar by fiscal year end. “The rupee remains overvalued in terms of RBI’s real effective exchange rate (REER) by more than 17%,” B. Prasanna, head of global markets, sales, trading and research said. That’s partly due to higher domestic inflation, and the RBI intervention is to manage this overvaluation, he added.

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