Latest News on Indian Rupee

The Indian rupee‘s recent gains could be short-lived as pressure grows on Prime Minister Narendra Modi’s administration to announce a nationwide lockdown to curb a deadly wave of coronavirus infections.

The prospect of stricter curbs is reviving memories of last year when similar measures dragged India‘s economy into its worst contraction in four decades. It’s also threatening to weaken the rupee, which is among Asias top three performers this month, thanks to heavy foreign inflows for initial public offerings, a dovish Federal Reserve and a glut of dollars at state-run banks.

“The recovery in the rupee in recent weeks reflects the softer dollar and weaker import demand as restrictions were imposed,” Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. “If a nationwide lockdown were to be implemented, we could see some near-term weakness in the rupee.”

India‘s capital extended its lockdown for another week while the nation reported 403,736 new virus cases on Sunday, and more than 4,000 Covid-19 deaths for a second day. Modi’s political allies, top business leaders and even U.S. President Joe Biden‘s chief medical adviser have said lockdowns could be the only way to stem the world’s worst virus outbreak.

Analysts have already trimmed Indias growth forecasts as individual states tightened restrictions, but a nationwide curb could deal a much larger blow to the economy. The Reserve Bank of India stepped in last week to provide loan relief and pledged to inject 500 billion rupees ($6.8 billion) of liquidity to support growth.

Inflation data on Wednesday is expected to provide more economic cues. Consumer prices are forecast to have climbed 4.1% in April from a year earlier, the slowest pace since January, to stay within the RBIs 2%-6% target range, which would provide room for more support measures. However, signs of more quantitative easing would be bad news for the rupee.

The currency could remain supported as expectations of a surge in IPOs this year keeps inflows coming, although its near-term trend points to a downside as virus cases show no sign of slowing. Below are the key Asian economic data and events due this week:

• Tuesday, May 11: New Zealand retail card spending, Japan household spending, China CPI and PPI, Philippine 1Q GDP, Malaysia 1Q GDP and BoP current account balance

• Wednesday, May 12: India CPI and industrial production

• Thursday, May 13: Japan BoP current account balance, BSP rate decision

• Friday, May 14: New Zealand businessNZ manufacturing PMI

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