The Indian rupee is likely to fall to the 70-mark against the U.S. dollar, if not more, by the end of this year on current account deficit pressures and Federal Reserve tightening rates, says DBS Bank Managing Director and Chief Economist Taimur Baig.
“There has to be more downside. How can one have a constructive view on a currency which has a twin deficit, in today's environment,” he told BloombergQuint in an interview.
The rupee fell over 7 percent against the U.S. dollar so far this year after India's current account deficit widened to $13 billion or 1.9 percent of GDP in the fourth quarter of 2017-18 compared to a year ago. It is currently trading at a 19-month low of Rs 68.58 per dollar.
This, however, is not a story exclusive to India’s currency. With the U.S. Federal Reserve tightening the interest rates, most emerging market currencies have been facing this stress, Baig said.
Because of U.S. Federal Reserve, they (emerging market economies) will see weaker currency, they will see capital outflow. There’s no two ways about that.Taimur Baig, MD & Chief Economist, DBS Bank
Corporations who are “highly leveraged on U.S. dollar funding side”, meaning the companies that pay in U.S. dollars and earn in rupee, will have a tough time going forward, he said.
Economic Outlook Strong
But macroeconomic factors remain the silver lining for India, as the economy is not showing any signs of a slowdown, Baig said. The country’s macroeconomic fundamentals continue to remain strong as domestic demand picks up. Private investment, which has been falling for years now, is also showing markers of a rebound, he added.
The Reserve Bank of India is likely to remain in monetary policy tightening mode going forward, as inflationary pressures remain along with strong growth rates, he said.
Watch the full interview here: