Barclays Joins Morgan Stanley in Predicting More Pain for Rupee

  • Currency will drop to 71.50 a dollar by year-end, UK bank says
  • Indian rupee is already Asia's worst performer in 2016

Barclays Plc is predicting more losses for India’s rupee, Asia’s worst performer this year, as the dollar strengthens and policy makers try to arrest a slump in exports.

The London-based bank has lowered its year-end and September-end forecasts for the Indian currency, which it estimates will drop to an unprecedented 69 a dollar by June 30, according to Siddhartha Sanyal, chief India economist in Mumbai. The rupee is down 0.6 percent in 2016 even after rallying 2.8 percent this month as India’s government stuck to its fiscal goals in February’s budget and investor sentiment toward emerging markets improved.

A recovery in crude oil prices and the willingness of central banks to support global growth has calmed markets and boosted demand for developing-nation assets following a volatile first six weeks of 2016. Even so, investor confidence remains fragile with concern over China’s economic slowdown and the global oil supply glut lingering. The rupee’s rally this month follows a 0.9 percent decline in February and a 2.4 percent slide in January.

“There is a clear trend of dollar strengthening and we think that will lead to some weakening of the rupee along with other emerging-market currencies," Sanyal said, citing the change in rupee forecasts by the bank’s currency strategists. “The scope for rupee appreciation is very limited as we expect the Reserve Bank of India will probably limit any gains to protect exports and will look to accumulate reserves."

Barclays’ strategists see the rupee ending 2016 at 71.50 a dollar, compared with an earlier projection of 70.50, according to Sanyal. The currency is forecast to weaken to 70.50 by Sept. 30, down from an earlier estimate of 69.50.

Morgan Stanley slashed its year-end rupee forecast to 73 a dollar from 70 earlier this month. The rupee “is likely to underperform in a risk-averse environment that we expect will continue to dominate fundamentals over the next few quarters,” Morgan Stanley currency strategists led by London-based Hans Redeker wrote in a report dated March 13.

The rupee rose 0.1 percent to close at 66.54 a dollar in Mumbai on Tuesday, according to prices from local banks compiled by Bloomberg. The currency fell last month to the brink of an all-time low of 68.845 seen in August 2013. A gauge of the greenback has dropped 0.3 percent in the past two days after climbing 1.3 percent last week in its biggest gain since November.

Exports from India declined 5.7 percent in February, a 15th straight month of contraction. The current-account deficit in Asia’s third-largest economy in the quarter through December was $7.1 billion, wider than the median $3 billion in a Bloomberg survey of economists, as overseas earnings from services slowed.

Indian sovereign bonds fell, with the yield on notes due January 2026 rising two basis points to 7.51 percent, according to prices from the central bank’s trading system.

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