INSUBCONTINENT EXCLUSIVE:
elections in May and an expected economic slowdown, a Reuters poll found.While currency recovered nearly 6 per cent after touching a record
low of 74.485 per dollar on October 11, January 2-8 poll of more than 65 analysts showed rupee will weaken again.However, fewer than 20 per
cent of contributors in latest poll expected rupee to breach that all-time low in next 12 months, compared to nearly 50 per cent in a
November survey and about one-third in December.After falling about 9 per cent in 2018 - its biggest decline since Prime Minister Narendra
Modi took office in 2014 - currency was forecast to weaken 1.9 per cent to 71.50 per dollar in a year, from about 70.20 on
Tuesday.Two-thirds of those who gave a year-ahead forecast predicted currency to be weaker - trading at more than 70 per dollar, with most
The others either had it around where it is now or a touch stronger."Overall there's nothing to be greatly optimistic about rupee
There are lots of uncertainties, both on economic and political fronts lingering as we enter into 2019," said Prakash Sakpal, Asia economist
at ING, adding that elections and political uncertainty pose "biggest risk"."Things could go either way
We might see BJP (Bharatiya Janata Party) retaining its power by a very thin margin
On other extreme, there could be a coalition
This would obviously not be viewed by international community positively, which of course is going to be bad for currency," Mr Sakpal said.A
deep selloff in emerging market currencies last year was triggered by a resurgent dollar and US-China trade war, making rupee
worst-performing major Asian currency in 2018.In recent weeks, dollar has lost momentum on economic growth worries in US and a dialing back
of rate hike expectations, benefiting emerging market currencies - with MSCI emerging market currency index rising to levels last seen in
late July.But growth conditions in most emerging economies aren't much to write home about either, potentially limiting upside for those
currencies.The rupee's path this year will largely be determined by results of elections in May, oil price moves and Reserve Bank of India's
policy.With foreign outflows from Asian equities biggest in at least seven years in 2018, US-China trade war and a widening fiscal deficit
at a time of slowing economic growth globally, rupee is not likely to rise.The government is expected to miss its deficit target of 3.3 per
cent of gross domestic product this fiscal year as data showed April-November deficit was already 115 per cent of budgeted target.That poses
a big threat to economic expansion
country's annual economic growth fell to a worse-than-expected 7.1 per cent in July-September quarter."Slowdown will become a trend this
year, especially as external demand will remain on a weakening path, whereas without much downside in oil prices, imports will remain
elevated, so we should see a bigger hit to GDP growth from continued widening in trade deficit this year," added ING's Mr Sakpal.But not
everyone was convinced about a weaker rupee, as expectations of fewer Federal Reserve rate hikes are likely to restrain dollar from making
further gains."We see retreat in global oil prices and a pause in Federal Reserve hiking cycle outweighing domestic concerns," said Rini
Sen, FX strategist at ANZ
"This will see rupee regain lost momentum, but much of this reversal is expected to come post general elections in mid-2019."
