Rupee to stagnate on dollar rally; yuan to rise slowly - Reuters poll

By Sumanta Dey

BANGALORE Fri Sep 5, 2014 3:01pm IST


(Reuters) - The rupee will likely stagnate over the next year as a U.S. dollar rally gathers steam and the Indian economy at best chugs along, while the Chinese yuan will probably appreciate a little, a Reuters poll found.

 

The poll of more than 30 currency strategists, conducted this week, predicted one U.S. dollar will fetch 60.50 rupees in a month, 60.30 rupees in six months and 60.82 rupees in a year. The dollar was trading around 60.43 on Friday.

Those predictions are a little more bearish than those in the August survey and come despite the rupee rising over 2 percent and the stock market rallying 28 percent since the start of this year.

"India enjoyed a steady stream of bond inflows in August, almost bursting the foreign investment limit of $25 billion," said Sook Mei Leong, ASEAN head of market research at BTMU in Singapore.

The European Central Bank on Thursday launched a stimulus programme to buy asset-backed securities and covered bonds in the latest attempt to revive the flagging euro zone economy and boost inflation.

Past experience shows that much of this money may eventually flow into emerging markets that offer a better return than the sub one percent yield of benchmark German bunds.

But with rising treasury yields in the U.S., inflows into Indian markets could be smaller this time around as investors flock to America's bond markets.

"Looking ahead towards year-end, portfolio inflows may taper especially with U.S. monetary accommodation ending soon, though it is unlikely to be as negative as that seen last year," Leong added.

From a year earlier, the Indian economy grew 5.7 percent in the quarter ended June, a 2-1/2 year high, breaking above a dominant sub-five percent trend seen in the past two years.
Still, unmet lofty expectations of reforms from the new government have tempered the jubilant optimism that followed Prime Minister Narendra Modi's election victory in May.
While economists are still hopeful the economy is gaining momentum, they agree it would take longer than earlier expected to return to near double-digit growth rate.

Also tempering the rupee's prospects is the U.S. dollar, as a long-anticipated rally is finally taking hold.

The dollar, as measured against a basket of currencies, has gained almost 5 percent since the start of the year on expectations the Federal Reserve will end its stimulus next month. Economists polled by Reuters expect the first rate hike in Q2 2015.