Indian rupee to outperform Asian peers in 2015 amid reforms, says HSBC

The Indian rupee, as the reform process is expected to gain further momentum, will continue to outperform its Asian peers that are likely to weaken further against the US dollar in 2015, says a report by HSBC.

According to HSBC, in 2015 all Asian currencies are expected to weaken against the US dollar, 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 US dollar," the global financial services major 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.

Supported by strong portfolio inflows and reform optimism, the rupee has outperformed the region, while improving macroeconomic data also helped.

This story should continue in 2015, the British financial services provider said in a research note.

The likely improvement in the current account deficit (CAD) and the real interest rate profile will sustain the Indian rupee's steady performance in 2015.

In addition, a decline in global commodity prices is also expected to help the domestic currency.

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 HSBC, 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 the recent state assembly elections, the global brokerage firm said.

We await more government divestment plans, and an increase in FII limits in 2015. We also expect the Reserve Bank of India's (RBI) monetary and foreign exchange policy to manage the volatility in the local currency, HSBC added.

The rupee depreciated by another 5 paise to 61.88 against the US dollar in early trade on Tuesday.