According to the latest Reuters poll, the Indian Rupee is seen rebounding against its American rival in the coming year, reversing a part of the steep losses. However, the recovery may not be a smooth one, in light of the 2019 general elections.
“The rupee is forecast to rebound and gain slightly to 66.87 in a year from about 67.45 on Tuesday, according to the poll of about 30 foreign exchange analysts taken after the Reserve Bank of India hiked interest rates on June 6.
That median, although slightly weaker than in May, was driven by expectations for Asia’s third-largest economy to remain the fastest-growing major economy as it did in the first three months of 2018 and on predictions for further interest rate hikes from the RBI.
The rupee was also expected to get a boost from a weaker dollar outlook.
But not everyone was convinced, with the year-ahead forecasts in the widest range in Reuters polls since July 2016, suggesting the rupee’s level in the run-up to the general elections next year is far from clear.
Rising inflation is a well-established risk and any further rapid rise in global crude prices would weigh heavily on the fiscal arithmetic, which is already widening.
In addition, the government is set to increase spending on populist measures ahead of the May general elections, which is likely to make foreign investors nervous.
Over a quarter of nearly 30 respondents in the latest poll, who gave a forecast for the currency in a year, expect the rupee to weaken to below the historic low of 68.8985 per dollar.”
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