After being hit hard by the second wave of Covid-19, the Indian rupee has staged a strong comeback as it has become Asia’s top-performing currency in May. The rebound is a likely result of the improving Covid-19 situation in the country.
India’s currency has climbed 1.7% against the dollar in May to beat all its regional peers as the nation’s daily infections decline rapidly after touching a record high. The rupee also has the benefit of offering Asia’s highest carry returns.
While a stronger currency is a sign that the Covid-19 situation in the country is improving, it is also a worrisome sign for exporters, especially at a time when the economy has lost recovery momentum.
According to Barclays note, the rupee is like to climb to 72.50 per dollar by next quarter from around 73 now due to supportive flows and attractive valuations. Lack of intervention from the RBI could also play a role, it added.
The currency may also get a lift as investors convert dollars from a slew of upcoming initial public offerings into rupees. Online food delivery startup Zomato Ltd.’s $1.1 billion share offering is among the upcoming IPOs.
It may be noted that the rupee tumbled to the lowest value in nine months in April when India was reporting record high Covid-19 cases. The Indian rupee had turned into Asia’s worst-performing currency from being the best in the previous quarter and had weakened past 75 per dollar. In contrast, there has been a sharp drop in the number of daily cases in the past few days. Today, daily cases have dropped below the two-lakh mark after a long time.
