(Bloomberg) -- A nascent rally in the Indian rupee has room to run on expectations that Prime Minister Narendra Modi will secure a strong mandate to execute pro-growth policies.

The currency, which has been at the mercy of the central bank’s vise-like grip recently, is set for a breakout and poised for its best month in almost a year. It will rally through its peak in March and hit 82 per dollar by the end of 2024, according to Malayan Banking Bhd. 

While the rupee is poised to strengthen, its gains may still be capped because of the Reserve Bank of India’s tight hold on the currency, guided by its goal to keep it stable and shield India’s export competitiveness. 

“Under normal circumstances, we would view an election win for Modi as being positive for the rupee given that the country has prospered economically under his administration,” said Shaun Lim, a currency strategist at Malayan Banking. “However, RBI has had a preference to lean against the wind and keep the rupee stable and that any significant gains could be tempered by their policy leanings.”

The rupee is seen gaining to 82.80 per dollar by year-end from 83.2513 on Wednesday, according to the median forecast in a Bloomberg survey. 

Nevertheless, traders will look forward to the count of votes on June 4 as India’s seven-phase election that started in April is nearing an end, and a landslide majority for Modi’s party may support the rupee. Modi has pledged to boost infrastructure and expand welfare programs should he win a third term in office as he seeks to transform the nation into a developed economy by the mid-century. 

The rupee is among Asia’s best performers this year, bolstered by about $6 billion in foreign inflows into local-currency bonds ahead of the inclusion of sovereign bonds into JPMorgan Chase & Co.’s emerging-market index in June. 

“If we get a strong mandate for the government, that can lead to a return of foreign investor flows,” said Anindya Banerjee, head of research, currency and commodity derivatives at Kotak Securities in Mumbai. He sees the currency rising to 82.60 per dollar by end-June if the RBI allows.

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