India’s widening current-account deficit is coming back to haunt the rupee, with analysts clamoring to lower forecasts on Asia’s second-worst performing currency.
Standard Chartered PPLC, Australia & New Zealand Banking Group Ltd and TD Securities have pared their targets for the currency.
Kotak Mahindra Bank Ltd has gone so far as to say that the rupee could fall past its 2016 record low of 68.89 per US dollar if global and local risks play out.
“Hit by a combination of higher oil prices, rising external vulnerabilities and a sharp slowdown in portfolio flows, the rupee is likely to remain prone to further depreciation pressures,” TD Securities senior emerging markets strategist Mitul Kotecha wrote in a note yesterday.
India imports two-thirds of its crude requirements and the spurt in oil prices has coincided with the slowdown in capital inflows.
Foreigners have turned net sellers of Indian equities this month and have pulled US$1.1 billion from its bonds this year amid hardening global yields — and more recently after the Reserve Bank of India (RBI) surprised the market with hawkish minutes.
“While the sharp sell-off in equity markets globally prompted funds to pull away from the region, domestic factors like fiscal slippage, bank scandals and a more hawkish RBI have affected flows to India,” ANZ strategists Khoon Goh and Rini Sen wrote in a note on Tuesday.
The bank has cut its forecast for the end of this year to 67 rupees to the US dollar from 66.
One of the sharpest revisions has come from Standard Chartered Bank. The lender reduced its second-quarter forecast to 66 rupees per US dollar from 62, and expects the currency to end the year at 65.50 versus the 61.50 previously predicted.
The currency traded down 0.3 percent to 66.61 at 9:37am in Mumbai.
India’s current-account deficit widened to US$13.5 billion in the three months that ended in December last year from US$7.21 billion in the previous quarter, as the trade gap widened.
The rupee is expected to trade at 64.88 by the end of this year, the median forecast of analysts surveyed by Bloomberg showed.
“INR [the rupee] is likely to face increasing two-way risks over the medium term,” wrote Divya Devesh, Asia FX strategist at Standard Chartered. “The period of INR outperformance is likely over.”
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