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Barclays bearish on Indian rupee, says RBI steps led to funding pressures

In a research report, the financial services firm said India is among those countries with "external vulnerabilities and questionable inflation targeting frameworks".

BT Online Bureau | August 27, 2013 | Updated 19:21 IST
More pressure in store for the rupee, warns Barclays
PHOTO: Associated Press

Global financial services major Barclays has said emerging market currencies, including the Indian rupee, are likely to remain under pressure, though depreciation is expected to slow from here.

The rupee tumbled to an all-time intra-day low of 66 a dollar on Tuesday on heavy month-end demand of the US currency from importers and banks amid sharp fall in the equity market.

In a research report on Tuesday, the financial services firm said India is among those countries with "external vulnerabilities and questionable inflation targeting frameworks" along with Turkey, South Africa and Indonesia.

Barclays is bearish on Turkish Lira, Indonesian Rupiah, South African Rand and the Indian Rupee.

"We remain bearish on TRY, IDR, ZAR and INR for now, although we do not forecast steep currency selloffs in any of these cases going forward," Barclays said.

The rupee has witnessed a significant fall in recent weeks, despite the Reserve Bank of India's (RBI) efforts to stabilise the currency through monetary tightening measures.

Barclays said domestic inflation pressures have driven some emerging market central banks, including Brazil's, into action and more central bank measures could follow, but added that "India's decision to tinker with capital controls only brought renewed funding pressures, setting an example for the rest the EM space."

Earlier this week, Barclays in a separate report had said India's efforts to curb imports, improve exports and attract greater remittances may help it almost fully fund its current account deficit (CAD) this financial year, and also help the rupee recover to 61-level against the US dollar in the next 6-12 months.

"We expect the INR at 61/USD in 6-12 months, which partly reflects the current account improvement," it had said.

Barclays had further said, in the near-term, rupee weakness could persist, especially in the absence of policy initiatives to quickly boost capital flows.

With inputs from PTI

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