As the reform process is expected to gain further momentum, the Indian rupee will continue to outperform its Asian peers, which are likely to weaken further against the US dollar in 2015, says an HSBC report.
According to the global financial services major, in the coming year all Asian currencies are expected to weaken against the USD, but the Indian rupee would be one of the more resilient currencies, provided the domestic policy framework does not disappoint.
"While many are in a better position than other emerging market currencies, we still see all Asian currencies weakening against the USD," HSBC said adding that the Renminbi (RMB), the Indian Rupee (INR), the Indonesian Rupiah (IDR) and the Philippine Peso (PHP) should hold up better.
On the other-hand, the Taiwan New Dollar (TWD), the Korean Won (KRW) and the Malaysian Ringgit (MYR) could underperform, HSBC said.
"The INR has outperformed the region, supported by strong portfolio inflows and reform optimism, while improving macro data also helped. This story should continue in 2015," HSBC said in a research note.
The likely improvement in the current account deficit and the real interest rate profile will sustain the INR's steady performance in 2015. In addition, decline in global commodity prices is also expected to help the Indian rupee.
"Challenges are mounting for Asian currencies. However, despite this, there are some early signs of positivity emerging for some currencies, especially those, where the reform agenda is gathering momentum such as the INR and the IDR," the report said.
According to the global brokerage firm, INR's long-term outlook has improved, largely driven by the recent measures aimed at attracting investment and controlling the twin current account and fiscal deficits.
The reform process is likely to gain further momentum going forward, especially after the BJP's win in recent state assembly elections, HSBC said.
"We await more government divestment plans, and an increase in FII limits in 2015. We also expect the RBI's monetary and Forex policy to manage INR volatility," it added.
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