Economists cut estimates on shock India’s growth slowdown
MUMBAI: The shock slowdown in India’s growth has economists rushing to cut their estimates for the end of the year. Their pessimism isn’t shared by currency strategists who are raising forecasts for the rupee.
Citigroup Inc and UBS Group AG are among global banks that have lowered their estimates for India’s growth after the latest data showed gross domestic product (GDP) in the June quarter rose at the slowest pace since 2014. Even so, the median rupee forecast for end-March is rising this month for a sixth straight month.
“Investors are more inclined to view this GDP miss as a blip, rather than a deteriorating signal over the macro backdrop in India,” said ING Groep NV foreignexchange strategist Viraj Patel.
The rupee “certainly stacks up as one of the best among Asian foreign exchanges, given the combination of a robust macro outlook, low external financing risks and low political risks”.
The jury is still out on how long the slowdown in India’s growth will last given it’s been at least partly triggered by one-time events such as the government’s unprecedented currency ban in November and the disruption caused by the July 1 implementation of a nationwide sales tax.
Currency investors need to weigh the domestic softening against broad weakness seen in the US dollar this year, which has supported the rupee.
The Indian currency has climbed 6.1 per cent this year, with the bulk of its gains coming in the first half of the calendar year. It has weakened about 0.2 per cent so far this month to 64 per US dollar yesterday, after rising 1.1 per cent in the last two months.