India’s August trade deficit is likely to remain at $17-$18 billion, while Fed reserve is set to raise rates again, both of which will weigh on the rupee.
Mumbai: The relentless slide in India’s rupee has analysts rushing to rework their forecasts. With the currency setting one record low after another, lenders including DBS Bank Ltd. are now predicting it will slide to as weak as 75 per dollar.
India’s trade deficit for August is likely to remain at $17 billion to $18 billion, while the Federal Reserve is set to raise rates again this month, both of which will weigh on the rupee, Philip Wee, a senior currency strategist at DBS, wrote in a note. UBS Securities India Pvt. cut its year-end forecast to 73 from 66, while Scotiabank sees the rupee nearing 74 in the run up to the Fed meeting.
The sustained weakness in the currency has caused a mini-revival of foreign inflows into Indian bonds to splutter. Global funds sold $686.4 million of rupee-denominated debt in the week ended 7 September, the most in four months. That’s also more than the combined $460 million of inflows in July and August.
“Right now, we can’t say that we have reached the end, and volatility and tension around flows in EM are likely to remain elevated,” said Manu George, director of fixed income in Singapore at Schroder Investment Management Ltd., which oversees $582 billion. The selloff in the rupee and negative sentiment toward developing markets “continues to weaken investor interest,” he said.
The rupee slid to a new record of 72.6738 on Monday, prompting authorities to ask the central bank to intervene more aggressively to stem the slide, people familiar with the matter said. The government may take steps including introducing a deposit plan for overseas Indians, a finance ministry official said.
We are deeply grateful to our readers & viewers for their time, trust and subscriptions.
Quality journalism is expensive and needs readers to pay for it. Your support will define our work and ThePrint’s future.
A stock take of the RBI’s policy toolkit suggests it has limited options to meaningfully influence the rupee’s near-term direction, meaning the currency will remain vulnerable to swings in global sentiment, Barclays said in a research note.
India’s trade deficit widened to $18.02 billion in July from $11.45 billion a year earlier, the Commerce Ministry said last month.
The rupee will end this year at 70 per dollar, according to the median estimate of analysts in a Bloomberg survey. The currency rose 0.1 percent to 72.3975 in early Tuesday trading.
“In the near-term, if external EM risks do not ease or trade protectionism rises further, the rupee could weaken well past our FY19 year-end forecast,” UBS analysts Tanvee Gupta Jain and Rohit Arora wrote in a recent note. – Bloomberg
News media is in a crisis & only you can fix it
You are reading this because you value good, intelligent and objective journalism. We thank you for your time and your trust.
You also know that the news media is facing an unprecedented crisis. It is likely that you are also hearing of the brutal layoffs and pay-cuts hitting the industry. There are many reasons why the media’s economics is broken. But a big one is that good people are not yet paying enough for good journalism.
We have a newsroom filled with talented young reporters. We also have the country’s most robust editing and fact-checking team, finest news photographers and video professionals. We are building India’s most ambitious and energetic news platform. And we aren’t even three yet.
At ThePrint, we invest in quality journalists. We pay them fairly and on time even in this difficult period. As you may have noticed, we do not flinch from spending whatever it takes to make sure our reporters reach where the story is. Our stellar coronavirus coverage is a good example. You can check some of it here.
This comes with a sizable cost. For us to continue bringing quality journalism, we need readers like you to pay for it. Because the advertising market is broken too.
If you think we deserve your support, do join us in this endeavour to strengthen fair, free, courageous, and questioning journalism, please click on the link below. Your support will define our journalism, and ThePrint’s future. It will take just a few seconds of your time.