But analysts sounded a note of caution, warning that the rally could be short-lived.
That appreciation in the rupee is a “relief rally,” DBS said. Capital Economics echoed the same sentiment, saying: “We doubt that the rally in (the) rupee has much further to run.”
DBS said the rupee has been supported by favorable external conditions such as the Federal Reserve’s pause in rate hikes, global markets recovering on optimism that the U.S. and China will reach a trade deal, and Brexit hopes.
“Unfortunately, none of these factors are firm,” DBS said in its note.
“We are still looking for two Fed hikes in the second half of this year. As for the negotiations, there are no guarantees that intentions would lead to a US-China trade deal in 2Q19 or that the UK avoids exiting the EU without a deal on March 29,” the Singapore bank said.
Analysts at the bank noted: “We remain mindful that Modi’s first term resulted in record lows for the rupee on twin fiscal and current account deficit and rising external debt.”
Meanwhile, Capital Economics said that expected slower growth in the U.S. would cause the S&P 500 to slump and push investors “to retreat from risky assets generally.”
It predicted that the rupee would drop to 75 against the dollar by the end of 2019, while DBS was more optimistic and said the Indian currency might end the year above 70.
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