Rupee fall, rising yields the two big Street signs for 2020: Poll

Mumbai: The rupee may lose at least 3 per cent in 2020, possibly setting a new record for lows, as a perfect cocktail of global headwinds and domestic fiscal troubles make global investors wary of buying Indian securities, a survey of 20 market experts by ET showed.The rupee will touch 74 or more to a dollar in 2020, more than half of the poll respondents believed. The local unit closed at 71.35 per dollar on Friday.“Overall macro-economy is not stacking up well in terms of fiscal problems and sluggish growth,” said Ashish Vaidya, head of trading at DBS Bank. “India has become a counter-cyclical story where we attract foreign inflows. We are suffering when the global economy is doing well and vice-versa.”“Assuming the global economy is stabilising and improving, the rupee tends to lose value,” he said, adding the rupee’s target in the range of 76-78.Companies may also have to face higher cost of funds as the benchmark bond yield, a key gauge, may be heading north by at least 25 basis points amid fiscal worries. A basis point is 0.01 percentage point.Nearly three-fourths of the participants expect the benchmark bond yield to rise to 6.75 per cent.“Yields cannot afford to drop amid economic challenges and fear of higher borrowing,” said Bhaskar Panda, executive vicepresident at HDFC Bank. “Too much rupee appreciation is not anticipated as excess dollar supply could be absorbed by importers and the central bank.”73023920 The rupee may not depreciate too much as foreign capital inflows are expected to remain robust due to yield and growth differentials, he added.A majority of poll participants, who also expect swings in currency and bond trades, believe a fall in the rupee’s value and rise in benchmark bond yields will likely mark the 2020 calendar year.The benchmark yield dipped about 88 basis points, pushing prices up even as the Reserve Bank of India cut the repo — the rate at which banks borrow short-term money from the regulator — by 135 basis points.Rising consumer price rises have, however, thwarted the monetary policy path.“Locally, worries over slowing growth, rising inflation and fiscal slippages will prevent the rupee from appreciating and leading to a surge in bond yields,” said Rahul Gupta, head of researchcurrency, Emkay Global Financial Services. “There is a suspicion in the market regarding the health of the centre's finances, which may weigh on the government bond prices,” he said.Rising food prices pushed up retail inflation in November to a more than three-year high of 5.54 per cent. The industrial sector output shrank for a third month in a row by 3.8 per cent in October, suggesting deepening slowdown in the economy.Traders expect a slippage in the fiscal deficit target next financial year would lead to higher market borrowings by the government.RBI has revised its projection for retail inflation upwards to 5.1-4.7 per cent in the first half the current financial year and 4.0-3.8 per cent in the second half, with risks broadly balanced. The RBI conducted a tiny version of “Operation Twist” two weeks ago, which brought down elevated bond yields. It will a conduct similar buy and sell of longer- and shorter-duration securities on Monday.

from Economic Times https://ift.tt/2ZxzRNx