Rupee likely to depreciate in near-term: Goldman Sachs

With risks to net borrowing requirement from budget on the upside, no major proposals to reduce CAD, depreciation pressure looms

The union budget for 2013-14 is likely to be negative for the Indian rupee, at least in short-term, according to investment bank Goldman Sachs.

"With risks to the net borrowing requirement from the budget on the upside, and no major proposals in the budget to reduce the current account deficit, we think there is depreciation pressure for the Indian rupee in near-term," Tushar Poddar, managing director and chief India economist at Goldman Sachs, wrote in his note to clients.

"Our 3, 6 and 12 month US dollar-rupee forecasts are 55, 53 and 52, with risks of further depreciation beyond 55 in the near-term," he added.

Goldman Sachs noted that the fiscal consolidation relative to market expectations has surprised on the upside but it may not be enough to offer the Reserve Bank of India (RBI) room to cut rates significantly.

"We think the consolidation may not be material enough to provide space for RBI to enact a significant amount of rate cuts. With RBI sounding hawkish on suppressed inflation and a very high current account deficit, we continue to expect RBI to cut (rates) by only 25 basis points in 2013, lower than consensus expectations," Poddar said.