Elections, USD strength and oil price to determine rupee direction: Report

The US dollar strength, oil prices and next year's general elections will determine the rupee's direction in the near-term, with fundamentals being supportive for the domestic currency over the next 6-12 months, says a report by Standard Chartered.

Attractive real yields (net of inflation), growth momentum and robust forex reserves of USD 394 billion are likely to be positive for the Indian rupee (INR), said the report titled '2019 India Outlook -- A year to prepare and react'.

On the macro overview, the report expects India's GDP growth to remain robust in 2019, supported by tailwinds from recent policy reforms (GST and bankruptcy code implementation), signs of a revival in private capex and pre-election spending.

"In our assessment, consumer price inflation (CPI) is likely to average 4 per cent in 2019. Benign food inflation, positive base effects, recent correction in oil prices and INR stability is likely to keep inflationary pressures under check," it said.

The report also said the RBI is likely to stay on hold in 2019, as inflation is likely to remain within its medium-term target of 4 per cent.

"However, if inflation continues to undershoot RBI's target, there is a possibility of a rate cut later in 2019," it noted.

On the equity market, Standard Chartered said, "We remain positive on Indian equity markets in 2019, though more cautious compared to 2018."