Prakash Sakpal, Economist at ING, explains that the Indian rupee (INR) exchange rate per US dollar surged to a record high of 70 when the Turkish financial crisis hit emerging market currencies hard earlier this week.
Key Quotes
“As if the external drags on the INR aren’t enough, the domestic economic data — a multi-year high trade deficit, elevated inflation, and signs of slowing GDP growth — haven’t been any friendlier.”
“With an apparently shallow central bank (RBI) tightening cycle ahead, the current INR depreciation trend looks to be a prolonged one.”
“The next challenge will be a string of state elections in the remainder of this year and general elections in 2019, which should see investors starting to add a political risk premium into local financial assets. As such, we don’t rule out an aggressive central bank (RBI) policy tightening at the October meeting. Yet we see no threat to our 71.5 forecast for the USD/INR by end-2018.”
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