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Rupee to weaken in near term, end 2017 at Rs 66 per dollar: BMI Research

The report expects inflation to average around 4 per cent over the long term

Press Trust of India  |  New Delhi 

Image via Shutterstock
Image via Shutterstock

The rupee is likely to weaken in the near term and may touch Rs 66 per by the end of this year, although the long-term outlook looks bullish, says a report.

The rupee was among the best-performing currencies in the world over the past year amid a broad-based emerging market rally but going forward, US real and prices are expected to impact the performance of the domestic unit, the BMI Research report said.

"After several years of INR out-performance, a period of under-performance, against both the $ and emerging market in general, is looking likely. We forecast the INR to end 2017 at Rs 66.00/$," it added.

prices are expected to continue the rally amid improving fundamental and technical outlook. While this should support for emerging market in general, as a large net importer this is bad for the Indian rupee.

However, from a longer-term perspective, rupee is likely to outperform in total return terms, it added.

"We forecast the INR to average Rs 66.33/$ in 2018 and depreciate by 1 per cent per year in spot terms over the long term as higher inflation rates necessitate a gradually weaker currency in order to maintain external competitiveness," the report added.

While headline consumer price inflation (CPI) came in at just 2.2 per cent year-on-year in May, BMI Research expects this to mark the low point of the cycle and expects inflation to average around 4 per cent over the long term.

As per the report, the risks to the said outlook are a pick up in the US economy and continued interest rate hikes, which could send real US bond yields rising back to pre-global financial crisis levels and this would likely lead to dollar strength across the board, particularly relative to emerging market forex.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Sun, July 09 2017. 12:53 IST