INSUBCONTINENT EXCLUSIVE:
The battered rupee is expected to stay that way for a while, trading near recent record lows over the coming year even as the Reserve Bank
against the dollar this year in its worst run since the financial crisis
It is down over 16 per cent so far this year, tracking a deep selloff in emerging markets driven by a resurgent dollar and the ongoing
US-China trade war.While just two weeks ago a majority of economists polled by Reuters predicted the RBI would hike interest rates on
October 5, the central bank surprised by keeping its policy unchanged and said it was not targeting any currency level.After that decision
the rupee fell to a record low of 74.25 against the dollar
On Tuesday, the partially-convertible local currency hit a fresh low of 74.395 per dollar."We believe the RBI is underestimating the
inflationary pressure in the Indian economy and the impact of ongoing Fed tightening," said Hugo Erken, senior economist at Rabobank,
referring to a series of rate rises by the Federal Reserve expected in the coming year.Inflation was forecast to be a touch above the RBI's
prices and a weak rupee, combined with below-normal rainfall this year could translate into rising price pressures over the near term.While
economists were evenly split on the question of whether a rate hike was required to stop the rupee from falling further, the RBI is still
expected to deliver in December
It is also forecast to follow that hike in the third quarter of next year, taking the repo rate to 7 per cent.That suggests economists have
pushed their expectations for the rate hike they had previously pencilled in for October to the next meeting, the last one scheduled for
this year."Even as most (on the Monetary Policy Committee) voted to change the stance to 'calibrated tightening,' there was an evident lack
of action on their part despite time running out to stop the rupee's worst fall in last five years," noted Prakash Sakpal, Asia economist
at ING.Still, 26 of 47 economists who answered an additional question said the RBI was right to keep policy on hold this month.Predictions
for one aggressive 50 basis point rate hike by end-2018 dropped sharply in the latest survey, with only one respondent now expecting such a
move compared to 17 in the previous poll on September 25."We continue to look for the US dollar-rupee to head towards 75.0, factoring in our
view of at least four rate hikes by the US Federal Reserve over the year, which will be dollar and rates positive," noted Radhika Rao,
economist at DBS Group Research.The latest Reuters poll of over 50 currency strategists taken October 5-9 showed the rupee was seen trading
around the current rate, about 74 per dollar, in three months and strengthening just a bit to around 73 per dollar in a year.The weakest
forecast across was 78.0 while the strongest rupee outlook was 67.97 compared to 75.6 and 66.1, respectively, in the previous month poll.But
in a year, the rupee's expected performance is broadly in line with expectations for most currencies as the dollar's resurgence is
predicted to fade.A majority, 27 of 48 analysts, said the risks were skewed more towards the rupee strengthening against the greenback over
