Declining Rupee faces turbulence ahead of 2019 elections. The Indian rupee (INR) may continue to decline against the dollar over the next few months according to analysts at currency forecasters Mizuho Bank Ltd.

US Rate Rise Will Hurt INR

Speaking to the Economic Times, Vishnu Varathan, Mizuho’s head of economics and strategy, said that the rising US interest rates would continue to give a boost to the dollar and that this would inevitably lead to some slippage in the rupee. Varathan has predicted a year-end rupee value of 65.8 per dollar, though he said it could drop as low as 67 this quarter.

INR was Asia’s worst-performing currency in September, which is a continuation of the steady decline in its value throughout the first half of the year. The decline appears largely down to foreign investors selling Indian stocks as a response to an economic slowdown in the country, accompanied by sluggish corporate earning. There are also fears that the government of Prime Minister Narendra Modi will come up with a fiscal stimulus package in the run-up to the 2019 elections, which could negatively affect the country’s public finances.

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Traders Wary Of Financial Measures

Investors are wary of a situation in which a range of populist vote-winning financial measures could prove too attractive for the government to resist, and against a background of unfavourable trends in the country’s fiscal and current account deficits, policymakers in the Indian government could be left with little room for manoeuvre.

Despite these concerns, the currency still retains some allure and compares favourably with some currencies over the longer term. According to Varathan, it may recover to around the 64.50 level by the end of the year, and he feels that while the currency is facing difficulties, these are manageable and do not represent a fundamental loss of confidence.

Aditya Puglia, the director of financial markets research for Emirates NBD, also sees a brighter long-term future for the currency, describing India as a fundamentally strong emerging market with a strong macroeconomic position, stable political background and low inflation, and predicts that Indian GDP is likely to rebound over the next six months.

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