The rupee’s outlook was also driven by renewed interest among foreign portfolio investors for Indian assets. They bought 160.69 billion rupees of Indian securities in October, the highest in six months, according to Foreign Portfolio Investors’ data.
A slowing domestic economy will prevent India’s rupee from recouping this year’s losses against the dollar in 2020, with optimism around an easing in the U.S.-China trade dispute not enough to give it a further boost, a Reuter’s poll showed.
After falling nearly 9% in 2018, the Indian currency has shed another 4% this year to touch a 2019 trough of 72.40 per dollar on Sept 3. It has since popped up over 2%, along with other emerging market currencies, on hopes of a possible trade deal between the world’s two largest economies.
But nothing has been agreed yet, let alone a meeting scheduled.
A barrage of rate cuts from the Reserve Bank of India this year - five reductions in succession for a total of 135 basis points off the repo rate, now at 5.15% - has done nothing concrete so far to revive a slowing Indian economy.
Neither have several government fiscal stimulus measures introduced this year, which have become a negative for the rupee’s outlook given it will be difficult for Prime Minister Narendra Modi’s government to meet its fiscal deficit targets.
“We expect the INR to weaken as risks of sluggish growth and fiscal slippage intensify,” said Rini Sen, India economist at ANZ.
“Stable portfolio flows led by equities and global cues like trade negotiations, on top of rate cuts, have led to bouts of optimism. However, we think the currency market is under-pricing downside risks to domestic growth.”
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