Danske Bank Bucks the Trend, Asserting Rupee Bulls are Mistaken as Record Low Approaches
Danske Bank, the top forecaster for the Indian rupee, is defying the majority view by predicting the currency will hit a new low by year-end, contrary to the consensus for its first gain in seven years.
Allan von Mehren, chief analyst at Danske Bank, who has the most accurate estimates according to Bloomberg’s quarterly rankings, forecasts the rupee may fall to 83.60 per dollar by December. This contrasts with a median forecast of 82.80 in a Bloomberg survey. The rupee remains one of the world’s least volatile currencies due to the central bank’s stringent control, which has bolstered the appeal of Indian assets amid a resurgent dollar causing turmoil in foreign exchange markets.
The Reserve Bank of India is expected to allow a gradual weakening of the rupee to help local manufacturers cope with higher inflation and support exports. The rupee may weaken “given the inflation differential with the US and a preference for stability and managing volatility,” said von Mehren, who has been covering the rupee for a decade of his 25-year career.
The rupee has been relatively stable this year, while the Thai baht and the South Korean won have dropped over 5%. It closed at 83.28 on Wednesday, little changed after hitting an all-time low of 83.5750 last month.
“There’s a limit to how strong India and the central bank would like to see the real effective currency becoming,” von Mehren noted. “There’s a preference for stability, but allowing it to depreciate very moderately is in India’s interest.”
