Rupee May Breach 70 to a Dollar, But Beat EM Peers
Mumbai: The rupee may weaken beyond ₹ 70 to the US dollar by the end of the year, but outperform other emerging market currencies as India remains the best stable macroeconomic story, an ET poll shows. Deutsche Bank, DBS Bank, Bank of America, Yes Bank, IFA Global and Edelweiss Financial Services are among those predicting the local currency to hit the 70-mark or fall beyond it. Just two of the 18 market participants polled expect the rupee to fir m up from the current level (67.32 a dollar).
“The rupee is expected to weaken, driven by a s t r o ng d o l l a r, ” s a i d I ndranil Sengupta, co-head of India research at Bank of America Merrill Lynch. “But, the local unit should still outperform most of the emerging market currencies as long as oil stays low, helping India to gain on the current account front.”
A current account deficit or surplus is the gap between the values of imports and exports. It was in a deficit of $300 million, or 0.1% of gross domestic product, in the April-June quarter last year, narrowing from 1.2% a year earlier, according to the latest available data. Crude oil prices have been hovering between $50 and $60 per barrel in the past few months. Though the prices are marginally higher than last year’s, they are still less than half f rom the peak eight-nine years ago and at a comfortable level for India, a net oil importer. India pays in dollars for crude and any rise in oil prices would increase the requirement for the greenback, in tur n weakening the rupee. Overseas debt investors in India are expected to earn about 4% in total returns after adjusting for expected spot exchange rate, compared with China’s 1.21% and Brazil’s 0.53% in the fourth quarter of 2017, a B l o o mb e r g forecast showed at the close of Friday’s local market hours.
That means, Indian assets show relatively higher return potential at a time when investors are likely to exit emerging markets amid expectation of US rate hikes and the resultant strength to the dollar. In February, the dollar has already gained nearly half a percent against a basket of six major currencies it is compared with.
A Budget aiming at growth via infra and rural spending may cap rupee’s value erosion