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Wed 6 Feb 2019 11:18 AM

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Rupee slides against US dollar amid pressure from fiscal deficit, elections

Rising crude prices and uncertainty about the outcome of India's 'Election 2019' will also have negative impact on rupee

Rupee slides against US dollar amid pressure from fiscal deficit, elections
Rising crude prices and uncertainty about the outcome of India’s ‘Election 2019’ will also have negative impact on rupee

Indian Rupee is seen sliding to 73.50 – 74 against the US Dollar by March end this year, bogged down by the slippage in the country’s fiscal deficit and looming uncertainties over the outcome of the forthcoming general elections, leading forex traders and market analysts said.

A further run up in international crude prices, estimated to reach $68-$70 level by end of the current quarter after the recent US sanctions against Venezuela and expectations of further production cuts by main producers such as Saudi Arabia and Russia, will be another factor which will put pressure on the rupee exchange value.

“The Budget 2019 announcement on the upward revision of India’s fiscal deficit target by 10 basis points for 2018-19 and 30 basis points for 2019-20 will definitely be a negative for rupee valuation,” Tarun Satsangi, founder and CEO of Tarunsasangi.com, a leading research firm tracking the foreign currency market, told Arabian Business.

Rising crude prices and uncertainty about the outcome of India’s ‘Election 2019’ will also have negative impact on rupee, he said.

“Rupee is expected to remain under pressure and may slip to 73/74 in coming months,” Satsangi said.

Rupee was trading at 71.57 against the Greenback on the currency market in the morning hours of today, a shade lower than the level on Tuesday.

Though the latest budget estimate has put only a 10 basis points slippage in the 2018-19 fiscal target of 3.3 percent of India’s GDP, market analysts and economists said a slew of populist measures announced, like cash doles to poor farmers and unorganised sector workers, are bound to upset the maths on fiscal target.

“An ultra-loose fiscal policy will see another overshoot of fiscal deficit above the revised target of 3.4 percent, with a report by ING putting the figure at 3.6 percent,” Ajay Kedia, MD of Kedia Comtrade, told Arabian Business.

The meeting of monitory policy committee of RBI, slated for tomorrow, is widely expected to keep status quo on the central bank’s policy rate on interest.

A combination of a further slippage in the fiscal deficit, looming political uncertainty over the formation of the new government at the centre and geo-political factors leading to further firming up of crude prices in the next 2-3 months will mean that the Indian rupee will continue to be a Asian underperformer,” Kedia said.

Currency analysts said the uncertainty over Brexit is providing an artificial support to the US currency, with the Dollar Index currently oscillating around 95.7, slightly below its 10-month high of 97.7, despite change in stance of the U.S. Federal Bank from rate hike to probably no rate hike or slower pace of rate hike for this year.

“Consolidation in the US Dollar Index will give mixed trigger to the India currency,” Satsangi said.

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