Barclays changes view on Indian Rupee after election

Barclays calls the Indian rupee one of its favorite high-yielding emerging-market currencies. The bank now sees the Indian currency at 58 rupees to the dollar in one and three months, compared to 60 previously. 

Barclays said that its more constructive rupee view reflects a combination of supportive factors including, an election result has encouraged portfolio inflows, a narrowing current account deficit and a globally supportive environment for carry trades. 

“Central-bank intervention will likely continue to limit the pace of INR appreciation against the USD, but the large size of portfolio flows implies that modest appreciation is likely to be tolerated by the RBI (Reserve Bank of India), in our view,” said Barclays. 

Barclays continues to think that a renewed bout of INR depreciation is unlikely, given the much-improved fundamental backdrop, led by a markedly smaller current account deficit, higher FX reserves, largely range-bound inflation and enhanced RBI policy credibility.

Rupee was as muscular as 69.22 rupees back in August, and the weak Indian currency at the time was one of the factors – along with gold-import restrictions-- blamed for reduced gold buying in the country, since a weak rupee makes gold more expensive for Indians.