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The USD/INR currency pair is expected to see some retracement once the election-victory euphoria of the Bhartiya Janata Party fades, just as what markets witnessed following the 2014 election of Prime Minister Narendra Modi.
The strong rally in the India rupee this week was the result of the BJP’s strong showing in the state elections. Expectations of further economic reforms by the Modi government have increased as a result, leading to strong foreign inflows into Indian asset markets.
The rally in the INR looks overdone as it has taken the currency to expensive levels on a real effective exchange rate (REER) basis.
"However, the moves in the currency have led us to upgrade our forecasts and we now expect USD/INR to end the year at 67.5 (vs 69.5 previously)," ANZ Research commented in its latest research report.
