Expect Rupee To Hit 70.8/$ By Year-End On Sustained Dollar Strength: Barclays
Barclays expects rupee to be less affected by dollar’s strength than other emerging market currencies.
The rupee on Monday broke below the 68-mark yet again by depreciating 24 paise to trade at 68.20 against the dollar in early trade at the Interbank Foreign Exchange, due to increased demand for the American currency from importers and banks.
Sustained capital outflows and dollar's strength against a basket of currencies also weighed on the local unit whereas a higher opening in the domestic equity market limited the rupee's fall, forex dealers said.
Barclays pegs the value of the rupee at 68.4 versus the dollar by the end of the first quarter of financial year 2016-17 and expects the currency to touch 70.8 by year-end, Mitul Kotecha, head of foreign exchange at the bank said in a phone conversation with BloombergQuint.
Here are edited excerpts from that conversation.
Is the rupee following its peers in emerging markets in general, or are there other factors that’s leading to its weakness against the dollar?
This is very much related to general moves in emerging market currencies and the U.S. dollar itself. The dollar is having a strong impact, across the board, in terms of currency markets although there was some weakness in the dollar at the end of last week. This does not seem to be particularly India-specific.
Based on what you are expecting from the new administration in the U.S. over the next three months, what is your outlook on bond yields and the consequent impact on emerging market currencies?
In terms of Trump’s policy prescriptions, looking at his nominees for key cabinet positions, there is clearly some anti-trade protectionist bias. India, from that perspective, is relatively well-shielded because it is a more closed, less trade dependent economy. Looking at the financing of India’s current account it is now much more longer term. India will be relatively resilient compared to the pressures seen in other currencies. That could bode well for the rupee. While we do see the rupee buffeted by the dollar, we see less exposure compared to other emerging market currencies and generally expect the rupee to outperform in the months ahead.
Can we expect the rupee to weaken no further than 69-70 against the dollar in the near term then?
It depends on your time horizon. According to our own views and forecasts, we think that eventually will be the case. But we do not expect that to happen in the near term. We see consolidation in the near term. Eventually we will probably see some weakness kick in as the dollar strengthens. By the end of this year, we expect to see 70.8/$.
What about the short-term outlook on the rupee?
Our forecast for end of the first quarter of 2017 is 68.4/$ and our forecast suggests a move to 68.9/$ by end of the second quarter.