INSUBCONTINENT EXCLUSIVE:
BENGALURU: The Indian rupee will erase some of this year's losses against the dollar over the coming 12 months but high volatility in the
run up to general elections in 2019 could send it off-piste, a Reuters poll found.
A selloff in emerging markets and a widening fiscal
deficit, exacerbated by rising oil prices - India's biggest import bill - has hurt the rupee this year.
The Indian currency hit an
18-month low of 68.47 per dollar in May and is down over 5 per cent so far this year, making it one of the worst performers in Asia.
But the
rupee is forecast to rebound and gain slightly to 66.87 in a year from about 67.45 on Tuesday, according to the poll of about 30 foreign
exchange analysts taken after the Reserve Bank of India hiked interest rates on June 6.
That median, although slightly weaker than in May,
was driven by expectations for Asia's third largest economy to remain the fastest growing major economy as it did in the first three
months of 2018 and on predictions for further interest rate hikes from the RBI.
"The INR continues to be alluring with more robust growth
and compelling FX reserve backstop," said Vishnu Varathan, head of economics and strategy for Mizuho Bank in Singapore.
"So once election
risks fade and oil price ascendancy is subdued by supply-demand gaps ironing out - mostly via higher United States and OPEC supply - we
expect the rupee will regain some traction as some of the risk premium - which pressures the currency now - erodes."
The rupee was also
expected to get a boost from a weaker dollar outlook.
"We expect the dollar to start weakening around the end of this year or the start of
Weaker dollar is expected to support most emerging market currencies," said Amy Yuan Zhuang, chief Asia analyst at Nordea.
But not everyone
was convinced, with the year-ahead forecasts in the widest range in Reuters polls since July 2016, suggesting the rupee's level in the run
up to the general elections next year is far from clear.
Rising inflation is a well-established risk and any further rapid rise in global
crude prices would weigh heavily on the fiscal arithmetic, which is already widening.
In addition, the government is set to increase
spending on populist measures ahead of the May general elections, which is likely to make foreign investors nervous.
Over a quarter of
nearly 30 respondents in the latest poll, who gave a forecast for the currency in a year, expect the rupee to weaken to below the historic
low of 68.8985 per dollar.
"Indian rupee will depreciate particularly due to political uncertainties built-up before the general elections
next year," according to Nirmal Bang's economist, Teresa John, who forecasts the currency to weaken to 70 in a year.
"Anything beyond the
70 mark should really be a cause for alarm, and if the currency falls below 69.5, there will be heavy RBI intervention," John added.
STEADY
YUAN TO GAIN SLIGHTLYChina's yuan, which has gained nearly 1.6 per cent so far in 2018, is expected to strengthen further to 6.38 per
dollar in a year.
The standard deviation for yuan estimates, a commonly used gauge of dispersion, fell to the lowest since a poll in
September 2016, suggesting China's central bank will keep a tight leash on the currency amidst the United States -China trade spat.
But
the yuan moves in the year ahead were expected to be largely dependent on how the dollar performs.
A similar poll last week predicted the
United States dollar's dominance will fade soon, with any sudden change in expectations for the policies of central banks posing the
biggest risk.
"The era of a strong dollar is close to the end
Although the recent upward momentum in the United States dollar may continue in the short-term, the dollar will remain week in the long-run
as the ECB and the BOJ tighten their monetary policy," said Li Yishuang, FX analyst at China Securities in Beijing.
"So, we expect the yuan
will strengthen slightly over the next 12 months."
