Global bond inclusion inflows help rupee buck EM currency losses

The Indian rupee outperformed all its emerging market peers in the first two months of the year, setting the stage for a strong 2024 as the nation’s inclusion in global bond indexes spur inflows.

The rupee was broadly steady versus the dollar in the past two months, making it the sole developing-nation currency to avoid a decline as the greenback charged ahead during that period. The advance came as global funds pumped almost $5 billion into Indian bonds to position for the nation’s inclusion in global indexes in the coming months.

India’s currency is likely to appreciate to 81 per dollar by end-December from around 82.9 on Tuesday, according to Credit Agricole SA and TD Securities. The rupee is among the least volatile emerging-market currencies this year, with traders speculating that the central bank may have dipped into its $619 billion foreign-exchange reserve stockpile to limit the swings.

“Overall, we will likely see a mild appreciation of the rupee with volatility still remaining quite low,” said Prashant Singh, senior portfolio manager for emerging-markets debt at Neuberger Berman in Singapore. “Some near-term rupee outperformance might be seen on the back of index-related flows.”

The median analyst forecast is for the rupee to appreciate to 82 per dollar by year-end, according to data compiled by Bloomberg.