The rupee has returned the highest yield among its Asian peers so far this year. And it’s among the best performing emerging market currencies, on track to break its six-year losing streak.
The Indian currency has given interest return of 6.37 percent so far this year. That’s based on carry trade—when an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate.
The rupee has also appreciated close to 6 percent against the dollar.
It’s been largely supported by a recovery in growth, credible Reserve Bank of India policy, continued economic reforms as well as strengthening foreign exchange reserves, brokerage Nomura said. The rupee is undervalued by nearly 7 percent as compared to the dollar, it said, and has ample scope for appreciation in the coming year. Nomura pegged the rupee at 63 to a dollar for the first half of 2018 and 63.50 in the second half.
DCB Bank expects the rupee to rise on potential foreign inflows in January and expect it to trade in the range of 63.80-64.50 a dollar in the January-March quarter.