Rupee slide forces analysts to rework forecasts amid widening trade deficit

The relentless slide in India’s rupee has analysts rushing to rework their forecasts. With the currency setting one record low after another, lenders including DBS Bank Ltd. are now predicting it will slide to as weak as 75 per dollar.

India’s trade deficit for August is likely to remain at $17 billion to $18 billion, while the Federal Reserve is set to raise rates again this month, both of which will weigh on the rupee, Philip Wee, a senior currency strategist at DBS, wrote in a note. UBS Securities India Pvt. cut its year-end forecast to 73 from 66, while Scotiabank sees the rupee approaching 74 in the run up to the Fed meeting.

India’s currency slid to a new record of 72.6738 on Monday, prompting authorities to ask the central bank to intervene more aggressively to stem the slide, people familiar with the matter said. The government may take steps including introducing a deposit plan for overseas Indians, a finance ministry official said.

A stock take of the RBI’s policy toolkit suggests it has limited options to meaningfully influence the rupee’s near-term direction, meaning the currency will remain vulnerable to swings in global sentiment, Barclays said in a research note.

India’s trade deficit widened to $18.02 billion in July from $11.45 billion a year earlier, the Commerce Ministry said last month.

The rupee will end this year at 70 per dollar, according to the median estimate of analysts in a Bloomberg survey. The currency strengthened 0.1 percent to 72.3975 in early Tuesday trading.

“In the near-term, if external EM risks do not ease or trade protectionism rises further, the rupee could weaken well past our FY19 year-end forecast,” UBS analysts Tanvee Gupta Jain and Rohit Arora wrote in a recent note.

India’s currency slid to a new record of 72.6738 on Monday,