Strong FDI inflows to support rupee against US dollar: UBS

New Delhi: FDI inflows to India is expected to rise significantly over the next few years and this will support the rupee against US dollar, an UBS report said. The rupee has been among the better performing currencies in emerging markets and has appreciated 6 per cent against the US dollar so far this calendar year.

Notwithstanding the strong performance of the domestic currency, the rupee is likely to remain range-bound (62-66) over the next few months and average 64.3 in 2017-18, UBS said in the report.

"We expect the rupee to remain range-bound (62-66) over the next few months and average 64.3 in financial year 2017-18 and 65.4 in 2018-19," global financial services major UBS said in the research note.

According to the global financial services major, foreign direct investment (FDI) inflows to India have nearly doubled over the past decade to USD 42 billion (1.9 per cent of GDP) as of 2016-17 and expected to strengthen to 2.5 per cent of GDP over the next five years.

"We believe the strength of India's FDI flows will help support the rupee against the US dollar even after the currency's strong performance earlier this year," said the report authored by Tanvee Gupta Jain, an economist with UBS.

The rupee is currently hovering around 64 against the US currency. According to UBS, the factors responsible for strong FDI inflows include policy efforts to kick-start the investment cycle and implementation of structural reforms in labour, land, capital and business.

Moreover, rising labour cost and ageing population abroad means that India is well placed to emerge as an FDI destination over the coming years, the report added.