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Why Rupee’s Top Forecaster Sees Resilience to Trump Trade: Q&A

  • RBI to continue intervention to smoothen swings: Scotiabank
  • Impact of note ban on growth unlikely to extend beyond March

India’s limited reliance on exports and the relatively low foreign ownership of local assets will help the nation’s currency fare better than most Asian peers if the dollar rally extends this year on U.S. President-elect Donald Trump’s policies, according to the top rupee forecaster.

The economic impact from Prime Minister Narendra Modi’s ban on high-value currency notes is transient, said Qi Gao, a Singapore-based foreign-exchange strategist at Scotiabank, which had the most accurate rupee estimates in Bloomberg’s quarterly rankings. The government’s adherence to its fiscal consolidation target in the February budget should be positive for the currency.

Scotiabank still expects the rupee to weaken to 68.80 per dollar by end-2017. That would mark a seventh straight annual drop for the currency, the longest losing streak since 2001, even as the bank’s forecast is a tad less pessimistic than the 69 per dollar median estimate seen in a Bloomberg survey. The rupee was up 0.2 percent to 68.0550 on Tuesday.

1) What is your view for the Indian rupee in 2017?

  • “The Indian rupee will continue to trade along with regional peers but is expected to outperform some currencies such as the Indonesian rupiah in case of dollar strength, given India’s relatively low foreign ownership of local financial assets.”

2) What are the key positives for the rupee?

  • “Key positives are India’s growth and reform story as well as high returns on rupee-denominated assets. Key risks are oil prices and CPI inflation.”

3) How much of an impact does the Trump trade have on inflows into India and the rupee?

  • “The impact will be modestly negative. India is not an export-driven economy,” even though the nation runs a current-account deficit, he said.

Read: Strategists Play Rupee Via Singapore Dollar as Economies Diverge

4) How do you see the impact of Modi’s demonetization on growth and consequently the rupee?

  • “The impact will finally fade away by March 2017. Onshore cash liquidity conditions have improved recently, which could regain and enhance foreign investors’ confidence to some extent.”

5) How much of an impact do you expect from the Reserve Bank of India on the currency?

  • The RBI will “smoothen excess volatility but not defend a certain level.”

6) Any rupee trades among your top Asia recommendations?

  • “We are long the rupee versus the Taiwan dollar and the Singapore dollar.”
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