INR: Once again in a tailspin - ING

According to Prakash Sakpal, economist at ING, as the Indian market is braced for a spike in political uncertainty, rupee has once again surged above the 71 level against the dollar, though higher oil prices might have helped.  

Key Quotes

“Rajasthan, a key Indian state and a stronghold of Prime Minister Modi’s Bhartiya Janata Party (BJP), goes to the polls tomorrow (7 December). The results of this and four other state assembly elections (Chattisgarh, Madhya Pradesh, Mizoram – held by Congress, and Telangana held by a local party) will start flooding in from 11 December, the day vote counting for all these states begins. It’s widely expected to be a close race between the BJP and Congress - the main opposition party. The outcome will be a gauge for the general elections scheduled for May 2019, seems to be difficult to predict, especially in Rajasthan and Madhya Pradesh.”

“For now, the safe bet is that investors will stay clear of this market until political anxiety disappears, which is unlikely before mid-2019. The consolidation of the USD/INR exchange rate over the last month below the 70 level was short-lived, and the pair bounced back above 71 this week.”

“Our year-end forecast of 71.5 remains on track, or rather subject to more upside risk. As things stand now, we remain confident about our view of the USD/INR re-testing the 73 level as political risk intensifies.”