More trouble ahead for bruised rupee | The Daily Star
12:00 AM, December 06, 2018 / LAST MODIFIED: 12:06 AM, December 06, 2018

More trouble ahead for bruised rupee

The rupee will weaken over the six next months as uncertainty builds heading into national elections due in May, a Reuters poll showed.

While a sharp drop in oil prices should help the slowing economy and the rupee, concerns will also persist over sluggish domestic demand which weighed more heavily on July-September growth than expected.

Most major Asian currencies have had a bruising year amid a strong US dollar, though many have made some gains this week after the United States and China agreed at the weekend to a 90-day truce in their trade war.

But the rupee - which is the worst performing major Asian currency this year with a fall of more than 10 percent - was an exception, weakening more than 1 percent on Monday.

This week's surge in oil prices, alongside official figures on Friday showing weaker economic growth in India during the July-September quarter, is offsetting hopes for an easing in the trade war.

Despite a few recent advances, the rupee is on track for its worst yearly performance in five years in 2018 and is forecast to weaken further.

“Politics is likely to decide the course for the Indian rupee in 2019. The political heat is already rising as the elections being held in five states currently will set the tone for the national elections in May 2019,” noted Prakash Sakpal, Asia economist at ING.

Sakpal said it will be tough for Prime Minister Narendra Modi government to retain power for another term, noting lingering public anger followed a chaotic demonetisation in late 2016 and the implementation of a Goods and Services Tax in mid-2017. “We expect it to be a too-close-to-call poll.”

The Nov. 28-Dec. 4 survey of around 40 strategists forecast the rupee would weaken over 2 percent by the end of May 2019, just after the general election, to 72.00 against the dollar. It was trading around 70.49 on Tuesday.

But the currency is expected to have regained some of that lost ground a year from now, when it is seen at 71.62.

Those results are in line with a separate poll of equity strategists who for the first time this year downgraded their outlook for Indian equities in 2019. Any gains were predicted to come only after next year's elections.

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