Wells Fargo & Co, the best rupee forecaster in 2010, predicts the currency’s appreciation to double this year as the Reserve Bank of India (RBI) adds to last year’s six interest-rate increases.
The rupee would climb 10.2 per cent to 41 a dollar, according to Nick Bennenbroek, head of foreign-exchange strategy at the San Francisco-based bank.
India-based Vadilal Enterprises, the second most-accurate forecaster last year, estimates a 3.2 per cent advance to 43.80. Wells Fargo’s 44.50 target for December 31 proved the most precise of 12 estimates recorded by Bloomberg at the start of the year.
India has the fastest inflation among Asia’s 10-biggest economies. Its benchmark interest rate is exceeded by Indonesia. In October, the International Monetary Fund forecast the economy would expand 9.7 per cent in 2010, approaching China’s projected 10.5 per cent. The median estimate of analysts surveyed by Bloomberg is for the rupee to appreciate 5.2 per cent this year and the yuan 5.6 per cent.
“The rupee is one of our top three preferred currencies for 2011 in Asia,” said Bennenbroek. “India remains an economic outperformer in 2011 and as inflation is high, policy tightening will continue.”
Repurchase rate
RBI raised the benchmark repurchase rate at which it lends to banks 150 basis points (bps) to 6.25 per cent last year as the average rate of inflation jumped almost six-fold to 9.5 per cent.
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Even as rates rose and inflation accelerated, bonds of Asia’s third-biggest economy returned 5.6 per cent in the past 12 months, according to indexes compiled by London-based HSBC Holdings Plc. Indonesian securities handed investors 24 per cent, the most in the region.
India’s three-year government bond yield of 7.74 per cent is the second highest among the so-called BRIC economies. Comparable securities offer 12.3 per cent in Brazil, 7.07 per cent in Russia and 3.4 per cent in China.
Higher yields and India’s economic growth lured overseas investors to add to holdings of the nation’s assets by an unprecedented $40 billion last year, boosting foreign-exchange reserves by $12 billion to $295 billion, official data show.
The rupee, which rallied for a second successive year in 2010 to advance 4.1 per cent, will extend gains as RBI increases the repurchase rate to 6.63 per cent by the end of this year, according to the median forecast of 10 analysts in a Bloomberg survey. The currency dropped 0.5 per cent to 45.2 a dollar yesterday on speculation local refiners boosted purchases of the greenback to pay for costlier crude-oil imports.