Wednesday, 8 February 2017

Poll says strong rupee may turn course, plunge to record lows

The prediction that the rupee will weaken to 69.50 to the dollar is based on expectations of a rise in the US currency. 

The rupee may have appreciated more than 1 percent this year, but a Reuters poll  expects the Indian currency to reverse its recent gains and sink to record low in the coming months.

The prediction is based on expectations for a rise in the dollar, even though new US President Donald Trump is a not fan of a strong currency.

The rupee weakened 2 percent last year, but has had a good 2017 so far thanks to a subdued dollar and hopes stimulus in the last week’s Union Budget would supercharge the economy.

However, a poll of more than 30 foreign exchange strategists taken over the past week showed the rupee weakening to 68.00 per dollar by the end of the month from 67.35 it was trading on Tuesday.

The currency is expected to weaken to 69.50 a dollar in 12 months, which would be a record low for the currency.

Navneet Damani at Motilal Oswal Commodities was quoted as saying that the current situation is a knee-jerk reaction to Trump's statements, but once things settle and are a little more actionable, the trend for dollar index strength would resume.

Expectations of a Reserve Bank of India rate cut on Wednesday and a further cut later in the year are also set to keep downward pressure on the rupee.

Acknowledging that last November's note ban will hurt growth, Finance Minister Arun Jaitley made few concessions in the latest Budget and instead targeted a fiscal deficit of 3.2 percent for 2017-18.

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