Currency volatility will continue to plague Asian units as both global and local factors will exert pressure in 2015, but the rupee will be comparatively better off in the region, says HSBC.
Pegging the rupee at 62.5 to 63 to the US dollar next year, the leading brokerage said the domestic unit should only drift higher on the back of the fast weakening current account strains.
“Lower oil prices should mean a persistent improvement in the current account and inflation. The RBI is committed to lowering inflation expectations and now has the ability to curb excessive rupee weakness,” HSBC’s head of Asian forex research Paul Mackel said in the report.
“These factors could mean the rupee will be one of the more resilient currencies in Asia, although the RBI is wary of spot appreciation, given that its own REER measurement is showing signs of over-valuation and we see the rupee at 62.5 to 63 to the dollar in 2015,” he said.
It has picked the rupee as the safest bet in the New Year amid soft growth and rising disinflationary pressures. It expects the rupee to be more resilient, as better terms of trade help bolster external balances via soft export volumes and commodity prices; and domestic growth can be supported by structural reforms and the ability to add leverage.
“This combination of global and local factors favours the rupee the most followed by the Indonesian rupiah and the Philippines peso…,” the report said.
“In our view, the RBI’s forex policy is still tilted towards exchange rate stability, particularly since it wants to move onto an inflation-targeting regime,” Mr Mackel said.
The rupee had fallen to the lowest level of Rs 68.80 against the dollar last year, but has recovered since then and among the more stable currencies.
He sees 2015 to be a tough year for most Asian currencies as a number of global and domestic factors will likely lead to meagre returns. He also sees every Asian currency weakening against the dollar as the US Fed’s expected tightening cycle and further easing by the Bank of Japan and the ECB should create greater regional forex volatility.