Reuters poll: Rupee to slide again after September rally

Reuters

By Rahul Karunakar

BANGALORE (Reuters) - The rupee's recovery against the dollar last month will not last, according to foreign exchange strategists polled by Reuters, who see the parlous state of the country's finances undermining the currency with U.S. monetary stimulus about to be cut back.

The rupee gained 5 percent last month, snapping a four-month losing streak and showing its biggest monthly gain since September 2012, helped largely by the Federal Reserve's surprise decision to continue with its bond purchases.

However, the consensus forecast from 25 strategists was that the rupee would be around 63.00 to the dollar by the end of October, 64.00 in six months and 64.25 by September next year.

The predictions for the distant months are not far from last month's poll but suggest a slight weakening from Tuesday's close of 62.45 per dollar.

"In the near term, the rupee may trade in a range before another bout of dollar-buying emerges as the Fed eventually starts to withdraw its stimulus," said Shivom Chakravarty, an economist at HDFC bank.

The rupee's gain last month came after a decline stretching over four months, with the currency losing as much as 20 percent at one stage and hitting a series of record lows.

From the beginning of May after the U.S. Fed said it would begin reducing its stimulus to the economy, foreign investors sold off assets in emerging markets from India to Brazil to South Africa.

India's high current account deficit has made it especially vulnerable to a surge in capital outflows from emerging markets and that is expected to weigh on the rupee in the coming year.

"Current account deficit countries like Indonesia and India will be the most vulnerable," said Khoon Goh, a currency analyst at ANZ in Singapore.

Analysts now expect the Fed to start reducing its $85 billion monthly purchase of bonds in December, according to a separate Reuters poll.

Latest data showed India's current account deficit widened less than expected in the quarter to June but its fiscal gap rose sharply in the current fiscal year.

The high fiscal deficit raises concerns about the government's ability to trim its subsidy spending ahead of elections slated for early next year, increasing the risk that it will miss its budget-deficit target.

(Polling by Hari Kishan; Editing by Alan Raybould)

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