BENGALURU: The Indian rupee will fall further against the dollar over coming months, according to analysts in a Reuters poll who predict a broad dollar rally based on expectations the Federal Reserve will raise interest rates later in 2015.
For its part, the Reserve Bank of India hinted this week that a rate cut was possible early next year if inflation continued to slow and the government met its deficit target. That sent government bond yields to their lowest since mid-2013.
The Chinese yuan, on the other hand, which the People's Bank of China manages, will likely appreciate a little even with another rate cut expected soon following a surprise rate cut two weeks ago.
"The dollar trend is something that's hard to ignore and a weaker rupee is not really a reflection of India's fundamentals," said Christopher Wong, analyst at Maybank.
"It looks like the dollar will continue to rise next year on interest rate hike expectations from the Fed, although I think the rally is a bit overextended."
This is in line with a wider Reuters poll which showed on Wednesday the dollar will steam ahead against major currencies such as the euro and sterling over the next year.
Since June, the rupee has steadily lost ground, giving up most of the gains it clocked in the first half, as economic growth sputtered and a long-awaited dollar rally took hold. The outlook for the rupee has deteriorated in tandem.
The poll of over 30 currency strategists, conducted this week, predicted one US dollar will fetch 62.00 rupees in a month, 62.50 rupees in six months and 62.50 in a year against Friday's rate of around 61.80.
If the one-year prediction is met, it would be the weakest rate for the currency since February 2014, when investors dumped emerging market assets, in the wake of the Fed announcing its eventual withdrawal from its stimulus programme.
The dim outlook for the rupee comes despite over $36 billion of inflows into Indian equity and debt markets since January and regardless of mounting expectations that economic growth will accelerate from the 5.3 percent rate, weak by Indian standards, post in the July-September quarter.
Still, the rupee is better placed among its peers given that its current account deficit is narrowing, and its inflation rate is cooling thanks in large part to a spectacular 40 percent drop in global crude oil prices over the past several months.
China's yuan is expected to slowly strengthen over the next 12 months trading at 6.12 per dollar in one month, then 6.10 in six months and 6.05 in a year.
On Friday, the yuan edged up slightly against the dollar after the PBOC set a stronger midpoint, though it appeared headed for a second straight weekly loss.
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