Rupee just got ‘Modi-fied’
— A victory for Prime Minister Narendra Modi is a win for the rupee.
Investors are betting that his party’s thumping electoral victory in India’s biggest state will embolden Modi to undertake more economic reforms and lure foreign funds, sparking the rupee’s biggest rally since early 2015.
That means the Indian currency is Asia’s only gainer against the US dollar this month, even as regional currencies dwindled in the face of a Federal Reserve interest-rate increase as early as Wednesday. The rupee’s 1.7 per cent gain in three days has already sprung the Reserve Bank of India into action, with the authority said to have bought dollars via state-run lenders.
Modi’s Bharatiya Janata Party won 312 seats in the 403-member assembly of Uttar Pradesh. Saturday’s results are seen as a validation of his popularity and reforms, which include opening up the country to more foreign investments and seeking to introduce a goods and services tax, ahead of general elections in 2019. India’s benchmark stock index surged to a record on Tuesday.
“The rupee will increasingly break its correlation with other Asian peers and emerge as a currency of choice amongst the Asian basket to hold in case of macro volatilities,” said Sambit Maharana, Mumbai-based associate director at Australia & New Zealand Banking Group. “The inflows into equities are expected to remain buoyant and that would keep the rupee on a sure footing compared to other Asian peers.”
The rupee’s 1.6 per cent advance in March is the biggest among 24 developing-nation exchange rates tracked by Bloomberg, after the Mexican peso. The Indian currency’s one-month implied volatility, a gauge of expected swings used to price options, jumped 59 basis points on Wednesday, set for its biggest jump since November 11.
The RBI bought dollars on Tuesday and Wednesday through stateowned banks, according to traders. Spokeswoman Alpana Killawala didn’t immediately respond to an e-mail seeking comment. The monetary authority has maintained it doesn’t target a specific rupee level and intervenes only to curb undue volatility in the currency market.
The intervention will allow the RBI to build foreign reserves, though it will probably let the market have more leeway, according to Cristian Maggio, head of emergingmarkets research at TD Securities in London.
The BJP also won in the northern state of Uttarakhand. The victories indicate that Modi continues to be a popular figure, even after his November 8 shock move to junk highvalue currency notes disrupted the economy and raised questions over his reforms.