Rupee to retain its gradual depreciating bias against the dollar this year: DBS Bank

Current account deficit could rewiden back towards 3% in FY2014

DBS Bank expects the Rupee to retain its gradual depreciating bias against the dollar this year, despite the likelihood of a short-term boost to the currency from a positive election outcome. Rupee found support above the 60/dollar mark, currently.

Stable external demand, fall in gold imports and weak domestic demand led to the lowering of last year's current account shortfall. While this helped to address this year's vulnerabilities, DBS Bank believes that the newly elected government will need to maintain this improvement in FY2015 to keep funding worries at bay.

DBS Bank feels these plans could be derailed, if gold imports rebound sharply when trade restrictions are lifted, along with an improvement in the domestic investment cycle.

At the same time, DBS Bank's outlook for external demand is cautiously optimistic as US demand might falter even as Eurozone stabilises at the margin. Asian demand is meanwhile likely to remain at last year's levels. The other risk factors include rise in the global oil prices and wider fiscal deficit.

DBS Bank expects that the risks are that the current account deficit could rewiden in FY2015 back towards -3%, but still not as dire as more than 4.5% in FY2013.

However, DBS Bank hopes funding a modestly wider shortfall unlikely to trigger much volatility with a stable political backdrop expected to attract inflows.

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