The rupee is expected to appreciate to 82 per dollar by the end of the year, from around 83.50 currently, said Jeremy Zook, director at Fitch in Hong Kong.
Bloomberg
By Ronojoy Mazumdar
Large potential foreign inflows into Indian bonds will help the rupee recover after hitting a record high, but the country’s central bank will likely limit the extent of gains, according to Fitch Ratings.
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The rupee is expected to appreciate to 82 per dollar by the end of the year, from around 83.50 currently, Jeremy Zook, Fitch’s Hong Kong director, said in an interview last week. The Reserve Bank of India could continue to prevent any sharp fluctuations in the currency by absorbing inflows, he said.
Although the currency hit an all-time low of 83.58 against the dollar in April, it has outperformed its emerging Asian peers this year, boosting its appeal to investors.
“India looks pretty well positioned in terms of inclusion in bond indices and flows that are expected to come in in the second half of the year,” said Zook, who has worked at the US Treasury Department and the International Monetary Fund in the past. . “The RBI currently has significant external reserve reserves and a modest current account deficit. »
Fitch’s estimate for the rupee is higher than the median estimate of 83 per dollar in a Bloomberg survey. The reduction in the trade deficit and the limited impact of the conflict in the Middle East on crude oil prices are working in favor of the currency.
To protect the country from hot money flows, the RBI has built up one of the largest stocks of foreign currencies in the world. Prime Minister Narendra Modi’s widely expected victory in the ongoing national elections also strengthens the case for an influx of capital.
“Even if there is an oil price shock, India has the reserves to manage some of these risks,” Zook said. “We hope for political continuity after the elections. In terms of reforms, we will keep an eye on the post-election budget,” he added.
Here are some other comments from the interview:
- Robust economic growth and external finances are key assets for India’s sovereign profile
- A high debt-to-GDP ratio remains a stumbling block from a sovereign rating perspective: India could face a debt-to-GDP ratio slightly below 80 percent, compared to around 50 percent for comparable economies with the same ratio. credit rating
- Fitch monitors reforms around broadening the tax base and increasing revenues after the elections
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