Reuters Market Eye - Headwinds for the rupee are likely to diminish considerably and the rupee could rally against the dollar in the second half of 2013, Deutsche Bank analysts write in a note.
The rapidly declining inflation is pushing up real interest rates, increasing the attractiveness of investing in rupee assets, the bank says.
The investment bank also expects the current account deficit to narrow substantially as gold and oil prices decline, while weak growth and policy measures lower import demand.
Inflows are expected to continue with planned government stake sales and rate cuts, Deutsche adds.
The bank also expects global risk aversion and associated sell-off to abate as the current sell-off on the back of expectations of the Fed withdrawing its stimulus is already overshooting, the bank says.
With the unit having depreciated 70 percent against the yuan since the start of 2007, export competitiveness has also been restored to a great extent against China, the analysts add.
"We therefore expect the rupee to rally against the USD in the second half of 2013," Deutsche analysts write.
(Reporting by Swati Bhat)
