Rupee Second Best In Asia As Bond Inflows Aid Currency

The Indian rupee is the best-performing currency in Asia after Hong Kong despite hovering near its record low, thanks to the inflows seen in the domestic gilts.

Amid dollar purchases by overseas investors and a weakening yuan, the local currency had weakened 20 paise to close at an all-time low of Rs 83.65 against the US dollar on Thursday, according to Bloomberg data. The decline of the local currency was in line with the weakening of all of its Asian peers, except Hong Kong and Taiwan, as a strong dollar weighed.

But, so far this year, the rupee has depreciated 0.45%, compared to a 3.31% rise in the US Dollar Index, according to Bloomberg data. This is the second best after Hong Kong's legal tender, which appreciated 0.11% during the year so far.

The overall market trend remains broadly weak for the rupee, albeit at a slower pace compared to peers, according to Jateen Trivedi, research analyst at LKP Securities.

The fall in the rupee comes a week before inclusion of domestic bonds in the JPMorgan's Government Bond Index-Emerging Markets. The rupee has taken comfort with over Rs 1-lakh-crore inflows in the gilts since the announcement last September.

The rupee has been a better performer because of robust investment inflows, particularly into the debt segment, and there remains an attractive yield differential, according to Kunal Sodhani, vice president at Shinhan Bank. "Also, the rupee has been still very much contained, mainly attributed to improving trade balance."

The Reserve Bank of India's intervention also has aided in keeping the country's forex reserves at an all-time high. The central bank will keep selling but will allow the depreciation at a slow speed as it helps exports and reserves, according to Anil Bhansali, executive director at Finrex Treasury Advisors LLP.

Higher dollar index and US yields, falling Asian currencies, outflows due to stake sales and higher oil prices have contributed to lower rupee, Bhansali said.

The upcoming weekly US jobless data will influence dollar trends, but volatility in the rupee range is expected to persist, Trivedi said. "The rupee is anticipated to trade within the range of 83.45–83.75."

The US Federal Reserve's rate cut stance and bond inflows, Modi 3.0's 100-day plan and the budget on the domestic front, will determine the rupee movement, Sodhani said.