After sliding incessantly for much of the year, India’s battered currency is slowly, but steadily, reversing its course.

On Nov. 29, the rupee closed at 69.85 to the dollar, marking the first time in three months that the currency closed below the 70-per-dollar mark. The psychologically-crucial level was first breached in August this year. Since then, the rupee’s depreciation has only accelerated—at one point, it even seemed to be within touching distance of 75-per-dollar.

However, in the past few weeks, the Indian currency has gained strength due to a combination of foreign and domestic factors: Global crude oil prices have been softening; India’s central bank, the RBI, possibly intervened in the market by offloading its foreign exchange reserves, and then there is also lower inflation.

As a result, the rupee, which has appreciated 5% in November, is Asia’s second-best performing currency this month, after the Indonesian rupiah. But even after the appreciation, the rupee is still down 8.5% for the year till date, making it Asia’s worst-performing currency in 2018.

Yet, experts Quartz spoke to believe the worst may be behind us, and the rupee is likely to remain below the 71-per-dollar mark.

The U-turn

For most of the year, oil had been on the boil and this had been a major pain point for the rupee. This is not surprising, since around 80% of India’s oil demand is met by imports, paid for in dollars.

In October, crude breached the $85-per-barrel level for the first time in over four years and was even expected to cross the $100-per-barrel mark. But since then, crude has lost nearly 25% and is now hovering around the $61 levels.

“The most important global factor affecting the rupee and the economic situation in the country was rising crude oil prices. The US had been adamant about economic sanctions on Iran which would have further affected crude oil prices and was adding pressure to the rupee,” said Madan Sabnavis, chief economist at the ratings agency CARE.

Another factor has been the dollar gaining strength and, consequently, eroding the value of emerging market currencies, including the rupee. As a result, overseas investors were pulling out of India, further denting the currency. Even this reversed in November, and investments by foreign portfolio investors (FPIs) in the debt and the equity markets improved.

“Now, all those who were holding on to the dollar have started selling it, so the demand-supply situation for the greenback has improved, which provides a relief to other currencies, including the rupee,” explained Indranil Pan, group chief economist at the financial services conglomerate IDFC.

Comments from the US Federal Reserve, earlier this week, also pushed the rupee up. The Fed’s chairman, Jerome Powell, said on Nov. 28 that rates in the US are “just below” neutral. For currency markets, which were anticipating aggressive rate hikes by the Fed, the comments came as a balm that soothed their nerves. The rupee gained ground following the Fed’s dovish stance.

Lower interest rates in the US also limit the market’s appeal to investors, who may not be pulling back from India now. Overseas investors have already pumped in Rs10,929 crore in November, reversing two months of net outflows.

Despite all these positive cues, a runaway strengthening of the rupee is not expected.

Considering that India is headed for general elections in 2019, markets are expected to remain choppy. “On Dec. 11, the election results for Chhattisgarh, Mizoram, Rajasthan, Telangana, and Madhya Pradesh will be announced and that will be a crucial point for the markets,” added Pan. “It will set the tone for the 2019 elections and the results will have an impact on the currency markets as well.”

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