Why
rupee may rise despite weak GDP point
The
rupee appreciated by nearly 1 per cent during September-November 2019 on the
back of recovery in global risk appetite.
With
CPI inflation
remaining under the Reserve Bank of India’s target of 4 per cent, the central
bank decided to cut interest rates four times by 25 basis points in 2019 and
one by 35 bps. The current repo rate stands at 5.15 per cent. Interest rates
are likely to fall further in order to boost growth and private consumption as
well as provide relief to the citizens.
Indian
Economy
likely to rebound,
The
September quarter GDP came in at 4.5 per cent. However, according to the latest
World Bank Report, growth is expected to gradually recover to 6.9 per cent in
FY21 and 7.2 per cent in FY22 on the back of income support schemes, investment
responding to corporate tax cuts and with credit growth picking up.
On
the trade talks’ front, the US and China are very close on reaching a partial
trade deal as per comments from President Donald Trump. However, the next
tariff deadline is December 15, which would apply a 15 per cent tariff on $160
billion of Chinese goods exported to the US.
Is this the
end of Fed easing?
In
the last meeting in October Federal Reserve’s Jerome Powell decided to cut
interest rates by 25 bps amid slowdown in business investments and a weak
export scenario. However, the Fed chief reiterated that this was the last of
the many interest cuts that happened in 2019, but also opened the gates for the
further tweak in the mandatory policy whenever it will be required.
In
2018, inflation was constantly above the 2 per cent target set by the Central
Bank and the country was constantly adding up new jobs in the economy (1,90,000
jobs added in 2018 compared with 1,80,00 in 2017). However, in 2019 inflation
has remained subdued and 2 per cent, and the US has added an average of 1,60,000
jobs on average between January and October, which is much lower than 2018’s
average.
Rupee
Outlook
Trade
talks are progressing smoothly, continuous inflows into Indian capital markets
and easing monetary policy major central banks will possibly lead to
appreciation in the rupee.
Investments
by foreign investors into the equity market stood at Rs.93,209 crore during
January-November. Moreover, there were inflows of Rs.31,856 crore into Indian
debt market during the same time period.
With
continuous inflows and hopes that US – China trade deal will get signed before
the next deadline will further add strength to the rupee. However, if the slump
in domestic GDP growth continues, then this can act as a major risk to the view.
Hence, the likely trend of the rupee is
to move towards the 70 mark (CMP: 71.52) by the end of December.
(Vaqarjaved Khan is Research
Associate Currencies at Angel Broking. Investors are advised to consult
financial advisers before taking an investment calls based on these
observations)
Comments
Post a Comment