Indian Currency – Outperformance will sustain!

Indian Rupee (INR) has appreciated against major global currencies. Most of the global
currencies have depreciated in the last one year against US dollar during the ongoing dollar
rally, whereas INR has appreciated against US dollar (see table 1 below). This is a stark
improvement as compared to the free fall witnessed in INR during 2013, after the Federal
Reserve’s (Fed) quantitative easing (QE) tapering talk. The twin deficits (current account deficit
and fiscal/budget deficit) are no longer a threat to macroeconomic stability. The crude oil is
falling, capital inflows are strong, inflation/interest rate are falling and economic activity is
picking up. The fall in inflation has provided comfort to RBI to start the much anticipated rate
cut cycle by reducing repo rate by 25bps on January 15, 2015. Indian economy under reform
oriented PM Narendra Modi, who is representing a one part majority government at the centre
after 30 years, is all set to start a new growth cycle.

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