Prakash Sakpal, Asia economist at ING, is predicting the rupee will weaken again despite recovering some 6 percent after plunging to a record low of 74.485 back in October. At its lowest point last year, the INR had lost around 14 percent of its value against the US dollar. The crippled currency had slowly clawed back gains over the last few weeks due to a weakened dollar and rising oil prices. As of 16:00 GMT, the rupee is trading at 70.4725 against the US dollar.
Mr Sakpal was predicting further misfortune for the Indian currency off the back of political uncertainty surrounding upcoming elections which must be held by May 2019.
Indian opposition leader Rahul Gandhi last month saw his Congress party beat Prime Minister Narendra Modi’s Hindu nationalist Bharatiya Janata Party (BJP) in three key state elections.
Mr Sakpal said: “Overall there’s nothing to be greatly optimistic about the rupee.
“There are lots of uncertainties, both on economic and political fronts lingering as we enter into 2019.
“Things could go either way. We might see the BJP (Bharatiya Janata Party) retaining its power by a very thin margin.
“On the other extreme, there could be a coalition.
“This would obviously not be viewed by the international community positively, which of course is going to be bad for the currency.”
A deep sell-off in emerging market currencies last year was triggered by a resurgent dollar and the US-China trade war, making the rupee the worst-performing major Asian currency in 2018.
In recent weeks, the dollar has lost momentum on economic growth worries in the US and a dialing back of rate hike expectations.
But not everyone was convinced about a weaker rupee, as expectations of fewer US Federal Reserve rate hikes are likely to restrain the dollar from making further gains.
Rini Sen, FX strategist at ANZ, said: “We see the retreat in global oil prices and a pause in the Federal Reserve hiking cycle outweighing domestic concerns.
“This will see the rupee regain lost momentum, but much of this reversal is expected to come post the general elections in mid-2019.”
Following a mammoth nine-hour meeting with board directors, the Reserve Bank of India last month announced it will work together with the government with a set of new fiscal strategies.
It pledged a review of the ‘Prompt Corrective Action’ framework, currently in place for 11 state-controlled banks, which enforces lending restrictions on troubled financial institutes.
India’s monetary policy committee sounded cautious on inflation and preferred to wait for more data to see for how long price pressure and growth momentum would remain soft.
The six-member committee unanimously decided to leave rates unchanged at the meeting in December, while staying optimistic on growth.
The panel, under the new chief Shaktikanta Das, might be more focussed on boosting growth and cutting rates after a recent sharp decline in inflation, the minutes suggested.
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