The Indian rupee, along with the Indonesian rupiah, was the worst performing currency in Asia during the height of Fed Taper Tantrum in 2013. The USD/INR pair had moved higher by almost 30 percent to just below 70 due to the current account and fiscal deficit concerns. However, both the current and fiscal deficits have contracted following the sharp decline in oil prices. Last year, the currency pair was quite stable because of the rebound in economic fundamentals.
For instance, the Indian rupee had depreciated against the US dollar by about 5 percent as compared with the average decline of 8 percent of other Asian currencies. So far in 2016, it has lagged behind other Asian currencies. A major sell-off in INR is not expected, said Commerzbank in a research report. The rupee’s attractive yield and enhanced fundamentals might keep giving an attractive proposition for investors looking for yield.
“We expect RBI to maintain a pragmatic approach in 2016 and aim to reduce excessive volatility rather than target a particular level, we see USD-INR at 69 by end- 2016,” noted Commerzbank.
