Rupee to gain momentum as India joins bond index: Citi
Citigroup Inc. has projected a strong performance for the Indian rupee in the Asian region this year. The currency's solid fundamentals, a decreasing current account deficit, and rising expectations of inflows due to India's inclusion into a global bond index are boosting its attractiveness, said Nathan Venkat Swami, head of foreign exchange trading in Asia Pacific at Citigroup. The rupee is currently the only emerging Asian currency that has gained against the US dollar this year.
Rupee's strength attributed to anticipated bond index inclusion
The rupee's strength is largely due to global investors buying Indian bonds in anticipation of the country's entry into JPMorgan Chase & Co.'s key gauge. "Global investors have preferred the rupee within most Asian long-short relative value baskets because of its carry and volatility dynamics," Swami stated. He also noted that the currency has been very stable, with narrow intraday movements and suppressed realized volatility in 2024.
Rupee's volatility remains low, election outcome a risk
Swami highlighted that the one-week and one-month realized volatility for the dollar/rupee has been tracking within the 1 to 1.25 vol range over recent months. The implied volatility curve is at multiyear lows. However, he warned of a significant risk to the currency if national elections yield unexpected results, with Prime Minister Narendra Modi currently seeking a third term in office.
