BENGALURU: A slowing domestic economy will prevent India’s rupee fromrecouping this year’s losses against the dollar in 2020, with optimismaround an easing in the US-China trade dispute not enough to give it afurther boost, a Reuters poll showed.
After falling nearly 9pc in 2018, the Indian currency has shed another 4pcthis year to touch a 2019 trough of 72.40 per dollar on Sept 3. It hassince popped up over 2pc, along with other emerging market currencies, onhopes of a possible trade deal between the world’s two largest economies.
But nothing has been agreed yet, let alone a meeting scheduled.
A barrage of rate cuts from the Reserve Bank of India this year – fivereductions in succession for a total of 135 basis points off the repo rate,now at 5.15pc – has done nothing concrete so far to revive a slowing Indianeconomy.
Neither have several government fiscal stimulus measures introduced thisyear, which have become a negative for the rupee’s outlook given it will bedifficult for Prime Minister Narendra Modi’s government to meet its fiscaldeficit targets.
“We expect the INR to weaken as risks of sluggish growth and fiscalslippage intensify,” said Rini Sen, India economist at ANZ.
“Stable portfolio flows led by equities and global cues like tradenegotiations, on top of rate cuts, have led to bouts of optimism. However,we think the currency market is under-pricing downside risks to domesticgrowth.”
The Nov. 1-6 Reuters poll of over 40 strategists predicted the rupee INR=to weaken about 1.3pc to 71.90 against the greenback in 12 months fromaround 71.00 on Wednesday.
Read Top Stories
The RBI, the most aggressive major central bank in the world this year foreasing, is expected to cut the repo rate at its sixth meeting in a row inDecember, a Reuters poll showed last month, which could put furtherpressure on the currency.
“Unlike the previous cuts, additional cuts could erode the allure of therupee as a higher yielder, while (the) growth prospect remains a concern,”said Saktiandi Supaat, head of foreign exchange research at Maybank basedin Singapore.
Indian economic growth has steadily slowed to a six-year low of 5.0pc inthe April-June quarter from an 8.1pc peak in the January-March quarter of2018 and recent business surveys indicate it will slow further.
While the year-ahead consensus in the latest poll was slightly strongerthan 72.50 per dollar predicted last month, it reflects the currency’s gainover the past month.
However, nearly two-thirds of 24 common contributors in the October andNovember Reuters polls either downgraded or kept their year-ahead forecastsunchanged.
Currency speculators have cut short bets on the rupee to the lowest sincemid-August, a separate Reuters poll showed.
