R MAY WEAKEN ON HIGHER US IN­TER­EST RATES

Ru­pee, the worst-per­form­ing cur­rency in Asia last month, is likely to weaken fur­ther as higher US in­ter­est rates boost the dol­lar, ac­cord­ing to Mizuho Bank. “Some ru­pee slip­page looks un­avoid­able in the com­ing months as dol­lar bulls take charge,” said Sin

Financial Chronicle - - FRONT PAGE - SUBHADIP SIRCAR

RU­PEE, the worst-per­form­ing cur­rency in Asia last month, is likely to weaken fur­ther as higher US in­ter­est rates boost the dol­lar, ac­cord­ing to Mizuho Bank.

“Some ru­pee slip­page looks un­avoid­able in the com­ing months as dol­lar bulls take charge,” said Sin­ga­pore-based Vishnu Varathan, head of eco­nom­ics and strat­egy at Mizuho, the third most-ac­cu­rate ru­pee fore­caster in Bloomberg’s quar­terly rank­ings. While his yearend ru­pee fore­cast is 65.8 per dol­lar, the cur­rency could po­ten­tially drop past 66 dur­ing the quar­ter be­fore find­ing an ini­tial sup­port at 67, he said.

The Bloomberg Dol­lar Spot In­dex in Septem­ber ral­lied the most this year as the Fed­eral Re­serve said a rate in­crease in De­cem­ber was on the ta­ble and Pres­i­dent Don­ald Trump an­nounced a plan to cut taxes. The green­back’s re­cov­ery is mak­ing in­vestors re­view the out­look for emerg­ing-mar­ket as­sets.

The ru­pee has gone from be­ing one of Asia’s best-per­form­ing ex­change rates in the first half to among the worst, with for­eign­ers dump­ing lo­cal stocks amid an eco­nomic slow­down and weak cor­po­rate earn­ings. Con­cern that any po­ten­tial fis­cal stim­u­lus from prime min­is­ter Naren­dra Modi’s govern­ment be­fore the 2019 elec­tions will worsen In­dia’s public fi­nances saw the ru­pee sink to a six-month low on Septem­ber 28.

“The road to 2019 elec­tions is paved with pop­ulist pot­holes that could dim fis­cal efforts,” said Varathan. “The up­shot is that as trends in the fis­cal and cur­rent-ac­count deficits turn less favourable, pol­icy mak­ers are con­fronted with sharply di­min­ished mar­gin of er­ror.”

While these con­cerns take some shine off the ru­pee, the cur­rency still re­tains its “real yield al­lure” and re­mains rel­a­tively at­trac­tive, Varathan said.

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