Will rupee touch 66 to a dollar? Deutsche, Mizuho Banks feel so

By Subhadip Sircar

Deutsche Bank and Mizuho Bank are forecasting more losses for India’s rupee, Asia’s second-worst performer, as a widening trade deficit and capital outflows amid a bank fraud sour the sentiment for the currency.

The lenders see the rupee weakening to as much as 66 per dollar in 2018, implying a 1.8 per cent decline from Monday’s close.


The Indian currency has slid 1.4 per cent against the greenback since January 1, just less than the Philippine peso in Asia. “The worsening trade deficit on the back of higher oil prices, the recent bank scandal that has resulted in foreign equity outflows and news that the RBI is looking to tighten offshore borrowing have conspired to weaken the rupee, from what had been overvalued levels,” said Khoon Goh, head of research at Australia and New Zealand Banking Group in Singapore.

UNDER PRESSURE

Trade gap widened the most in more than 4 .5 years in January as imports surged, which is expected to worsen the current-account deficit. The $2-billion fraud at Punjab National Bank has hurt investor confidence and raised worries about the availability of trade credit. Global funds have pulled $583 million from local stocks since the scam surfaced on Feb 14. The Reserve Bank of India is reviewing its process for allowing companies to raise money abroad on concern that any increase in rupee volatility may hurt borrowers’ ability to repay debt, a person familiar with the matter said.

A scarcity of dollar supply may make the dollar more expensive versus the local currency. Following are views from strategists: Deutsche Bank maintains a “slightly conservative view” regarding the rupee given that current-account deficit will rise toward 2 per cent of GDP in FY19 amid a volatile global environment.

It sees USD/INR trading in the broad range of 64-66 through 2018, with rupee likely to end the year closer to the upper band.

ING Groep says that INR should remain weak considering current economic situation of below-potential growth, rising inflation and worsening fiscal and external payments situation.