A drop in global crude oil prices has significantly helped the rupee stage a recovery, but sluggish domestic demand may riddle the domestic currency once again.

HIGHLIGHTS

Rupee’s depreciation has been linked to rising uncertainty heading into the Lok Sabha elections in 2019
The domestic currency’s rout throughout the year has earned it the tag of the worst performing currency in Asia
Rupee’s value against the dollar will weaken by at least 2 per cent by the end of May 2019
The Indian rupee, which staged a decent recovery after almost cross the Rs 74-mark against the US dollar, is set to weaken over the next six months, according to a poll by news agency Reuters.

The primary reason for the rupee’s slowdown has been linked to rising uncertainty heading into the Lok Sabha elections, due in May 2019. The rupee currently stands at Rs 70.73 against the dollar after a 4 per cent appreciation in value in November.

A drop in global crude oil prices to the tune of almost 30 per cent has significantly helped the rupee stage a recovery, but sluggish domestic demand may riddle the currency once again, noted the survey.

The report highlights that most Asian currencies faced slowdown during the current year due to a strong US dollar.

However, the rupee’s rout throughout the year has earned it the tag of the worst performing currency in Asia, with a fall of more than 10 per cent throughout the year. It further weakened by 1 per cent on Monday.

Worst yearly performance

The survey suggested that the rupee is on track for its worst performance in five years in 2018 and is forecast to weaken further political headway in 2019 will decide the fate of the rupee among other economic factors, an economist told the news agency.

Politics is likely to decide the course for the rupee in 2019. The political heat is already rising as the elections being held in five states currently will set the tone for the national elections in May 2019, said Prakash Sakpal, Asia economist at ING.

Sakpal was critical of the ruling Bhratiya Janata Party (BJP), saying that the government will have their work cut out before the major general election. He also criticised the government’s move to impose demonetisation in November 2016 and the implementation of Goods and Services Tax in mid-2017.

Rupee’s journey in 2019

The survey indicated that rupee’s value against the dollar will weaken by at least 2 per cent by the end of May 2019, which is the period following the general election. It is expected to hover around the Rs 72-mark against the US dollar it could depreciate more or less depending on the mood that prevails after the major elections next year.

A separate poll of equity strategists indicated that any gains on the economic front, especially in the case of the domestic currency, will come after May 2019.

Better in comparison

Despite predicting a drop in currency value, the fresh outlook for the rupee is marginally better than the last poll when half of the 51 analysts predicted that the rupee would depreciate to an all-time low of Rs 74.48 against the dollar in 12 months.

This time, however, only 13 of the 49 respondents believe that the rupee would touch an all-time low. It is worth mentioning that the domestic currency had on October 11, 2018 touched a record low of 74.38 against the US dollar.

However, a sharp reversal in oil prices and cooling of tensions between the Central government and the RBI helped the rupee stage a decent but much-needed recovery.

(With inputs from Reuters)

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