Rupee rising on expected BJP victory
A VICTORY for India's main opposition party in next month's general elections is seen to be powering the rupee to highs last reached in 2008.
Polls showed Mr Narendra Modi's Bharatiya Janata Party (BJP) is poised to oust the incumbent Congress party, a result that would be a "catalyst" for a long-term advance in the rupee towards 40 to 45 per US dollar, from 61.19 on Friday, according to Mr Adam Gilmour, Citigroup's head of Asia-Pacific currency and derivatives sales.
A weak coalition would be the "worst-case" outcome, he said, and might send the currency sliding beyond August's record low of 68.845.
"The market view is that if Mr Modi gets in, it will be a game-changer," Mr Gilmour said in an interview in Singapore.
"We always take politics with a pinch of salt, with the rare exceptions, such as India, where it's going to really make a difference."
At stake is the pace of recovery in Asia's third-largest economy, which is only now gaining traction six years after the start of the global financial crisis.
While an improvement in India's current account helped the rupee beat its regional peers over the past six months, the victor in next month's polls will take on the task of steering a country whose economy is expanding at close to the slowest pace in a decade.
Polls by Nielsen and the Centre for the Study of Developing Societies (CSDS) predict Mr Modi's BJP will win the most seats, while falling short of a majority in the Lower House of Parliament. The Congress party is projected to garner its smallest number of seats.
The BJP and its allies will win as many as 232 parliamentary seats, 40 short of a majority, according to a poll released on March 6 by the CSDS. Election results are due on May 16.
The rupee lost about 28 per cent of its value from the end of 2010 through last year, making it the worst performer among 12 Asian currencies tracked by Bloomberg.
The declines reversed when the biggest gold-consuming nation raised import tariffs on the precious metal, helping narrow the shortfall in the broadest measure of trade to a four-year low, and central bank governor Raghuram Rajan increased interest rates to curb Asia's fastest inflation.
The rupee has rebounded about 13 per cent from its Aug 28 record and remained little changed even during the rout in emerging-market assets earlier this year.
"The positive sentiment really comes from the new central bank governor," Mr Andy Ji, a Singapore-based strategist at Commonwealth Bank of Australia, said last week in a phone interview. "He's had a more material impact on the rupee. Politics is just icing on the cake."
Mr Modi, the chief minister of Gujarat in the north-west of the country, has the backing of business leaders and equity investors.
Billionaire Mukesh Ambani and former Tata Group chairman Ratan Tata have praised the 63-year-old politician, who has pledged to bring more investment into the country should he succeed in ending Prime Minister Manmohan Singh's decade-long rule.
Mr Rahul Gandhi, the 43-year-old scion of India's foremost political dynasty and Congress vice-president, has become Mr Modi's main opponent after Dr Singh said in January he will not stand for a third term.