The Rupee’s Top Forecaster Is Going Against the Crowd

(Bloomberg) -- The Indian rupee's top forecaster is going against the crowd. The currency will strengthen by the year-end, Emirates NBD PJSC forecasts, bucking a growing consensus that sees it hitting new record lows.

The negatives responsible for the rupee's recent slide -- elevated oil prices and a strong dollar -- have run their course, Aditya Pugalia, Dubai-based director of financial markets at the bank, said in an interview.

“While these factors may continue to weigh on the rupee in the immediate term, they are likely to dissipate in the medium term,” said Pugalia, who had the most accurate estimates in Bloomberg's quarterly rankings. A proactive inflation-targeting central bank will likely put a floor under the currency over the next three months, he said.

Emirates' rupee forecasts -- 67.5 to the dollar by end-September and 67 by end-2018 -- are at odds with a bleak broader outlook for the currency. Macquarie Bank expects it to hit 71 early next year, while DBS Group Holdings Ltd. has forecast a similar level by June 2019. Barclays Plc sees the currency at 72 by year-end. The median forecast in a Bloomberg survey sees it at 68.20 by end-December.

The rupee has overshot its equilibrium value and is undervalued at current levels, UBS analysts Tanvee Gupta Jain and Rohit Arora wrote in a note Wednesday. Its fair value, based on productivity-adjusted real-effective exchange rate, is in the 64-66 range, they wrote.

The rupee slid to an unprecedented 69.0925 per dollar last month. It ended up 0.3 percent at 68.5725 on Thursday.

Here are some other comments Pugalia made during the interview:

• “I don't see the rupee depreciating below 69 for some time. INR at 69 should provide a boost to exports. That's why you see no comments from the finance minister about the rupee. They're happy as long as the rupee remains within a tight range and isn't too volatile”
• “It's likely that we will see another rate hike from the Reserve Bank of India. That should provide a little bit of buffer to the rupee”
• “India is also caught in a trade war with the U.S. A lot of the focus is currently being placed on U.S. and China. It's effectively the U.S. vs the world. The current depreciation in rupee will negate some of the negative implications of tariffs”
• India's “current-account deficit has widened beyond our estimates, but it's still not a concern. The RBI is sitting on pretty significant FX reserves”
• “The situation is much different compared with 2013-14 when a lot of emerging-market currencies were singled out. That was actually the start of monetary tightening in the U.S.. This time we are effectively in the middle of the tightening in the U.S.”
• Recent INR moves driven by sharp and sustained rise in oil prices, broad pressure on Asian currencies and USD strength

--With assistance from Subhadip Sircar.

To contact the reporter on this story: Rahul Satija in Mumbai at rsatija1@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Ravil Shirodkar, Shikhar Balwani

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