Gold Silver Reports — Rupee Optimism Holds Despite Shock Slowdown in India Growth — The shock slowdown in India’s growth has economists rushing to cut their estimates for the end of the year. Their pessimism isn’t shared by currency strategists who are raising forecasts for the rupee.
Citigroup Inc. and UBS Group AG are among global banks that have lowered their estimates for India’s growth after the latest data showed gross domestic product in the June quarter rose at the slowest pace since 2014. Even so, the median rupee forecast for end-March is rising in September for a sixth straight month.
“Investors are more inclined to view this GDP miss as a blip, rather than a deteriorating signal over the macro backdrop in India,” said Viraj Patel, a London-based foreign-exchange strategist at ING Groep NV. The rupee “certainly stacks up as one of the best among Asian FX, given the combination of a robust macro outlook, low external financing risks and low political risks.”
The jury is still out on how long the slowdown in India’s growth will last given it’s been at least partly triggered by one-time events such as the government’s unprecedented currency ban in November and the disruption caused by the July 1 implementation of a nationwide sales tax. Currency investors need to weigh the domestic softening against broad weakness seen in the U.S. dollar this year, which has supported the rupee.
The Indian currency has climbed 6.1 percent in 2017, with the bulk of its gains coming in the first half of the calendar year. It has weakened about 0.2 percent so far in September to 64 per dollar on Wednesday, after rising 1.1 percent in the last two months.
The median of estimates compiled by Bloomberg shows the rupee will end the financial year at 64.50, as against the 64.70 forecast at the end of August.
The case for a downward revision to growth has intensified “with weaker than expected first-quarter GDP data, reduced space for fiscal spending and emerging concerns on consumer confidence,” Citigroup economists Samiran Chakraborty and Anurag Jha wrote in an Aug. 31 report, lowering their estimate for GDP growth to 7 percent from 7.5 percent. — Neal Bhai Reports