Danske Bank opposes majority, says rupee bulls wrong as record low looms

By Malavika Kaur Makol
 

The Indian rupee’s top forecaster is going against the majority. The currency will test a fresh low by year-end, according to Danske Bank A/S, defying the consensus prediction for the first gain in seven years. 
 

The currency may decline to 83.60 per dollar by December, said Allan von Mehren, chief analyst at Danske Bank, who had the most accurate estimates in Bloomberg’s quarterly rankings. That compares with a median forecast of 82.80 in a Bloomberg survey. 

The rupee remains one of the least volatile currencies in the world thanks to the central bank’s tight grip on it —  a factor that helped burnish the appeal of Indian assets in a year when a resurgent dollar wreaked havoc in foreign-exchange markets. 

The Reserve Bank of India is expected to let the rupee weaken steadily to help local manufacturers fight higher inflation and support exports. 

The rupee may weaken “given inflation differential with the US, and a preference for stability and managing the volatility,” said the currency veteran, who has been covering the rupee for about a decade of his 25-year career. 

The rupee has been largely steady this year, while Thailand’s baht and the South Korean won have declined more than 5 per cent. It closed little changed at 83.28 on Wednesday after sliding to 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,” he said. “There’s a preference for stability, but still allowing it to just depreciate very moderately is in India’s interest.”