More woes for rupee! Barclays says Indian currency will suffer even worse rout than 2013 taper tantrum

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Published: June 25, 2018 12:52:37 PM

The lender expects the rupee to decline to 72 per dollar by year-end as elevated oil prices dent government finances and foreigners dump Indian assets.

The prediction is also more bearish than the 67.52 median forecast in a Bloomberg survey. (Source: Reuters)

Barclays Plc has become the most bearish forecaster on the Indian rupee, predicting the currency will weaken more than it did during the taper tantrum five years ago.

The lender expects the rupee to decline to 72 per dollar by year-end as elevated oil prices dent government finances and foreigners dump Indian assets. Hitting the target would mean an annual drop of 11.3 per cent for the currency, worse than that seen in 2013. The prediction is also more bearish than the 67.52 median forecast in a Bloomberg survey.

“India’s difficulty in attracting portfolio flows is exacerbated by the poor bound market, unclear policy communication by the Reserve Bank of India and rising political risks ahead of the 2019 election,” analysts Hamish Pepper and Dennis Tan wrote in a note Thursday. Barclays’ earlier forecast was 69 per dollar.

The sentiment has reversed from a year ago when analysts said emerging-market currencies were better prepared to endure a selloff when major central banks start paring stimulus because of healthy public finances and subdued inflation. But elevated oil prices and hardening global yields has spurred global funds to pull $6.7 billion from Indian stocks and bonds this year, sending the rupee to the brink of its 2016 record low.

The rupee was trading 0.3 per cent higher at 67.8150 at 4:14 p.m. in Mumbai, set for its first weekly advance in three.

“India’s wider current-account deficit, driven by higher oil prices and demand for capital import, will be increasingly difficult to fund, given the increased return competition posed by higher USD rates for EM debtors,” the analysts wrote.

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