Belt up! Rupee expected to tumble to its worst ever soon

Be it strong or mild, the Indian rupee has always been vulnerable to outside shocks. Two forecasters of Indian rupee have come out with their insights and the reports suggest, the rupee will see worst time soon.

The HDFC Bank Ltd., which had the most accurate estimates in Bloomberg's quarterly rankings, stated U.S. Federal Reserve policy tightening driving a 2.6 percent decline in the currency to 68.50 per dollar by March 31, from Friday's close of 66.7150.

Whereas, the second top forecaster, the National Australia Bank Ltd., sees the rupee will strengthen to 66.20 as economic growth and a narrowing current account deficit help offset any outflows from emerging markets.

"The rupee could take a bit of beating along with other regional currencies. The Fed's December decision "could lead to uncertainty in global financial markets and a risk-off episode," Tushar Arora, HDFC's senior economist for treasury based near New Delhi, told Bloomberg.

HDFC’s claim strengthened, that the rupee will go towards 68.845 in 2013, when the currency fell the most in three months after Fed pushed the case for higher U.S. rates.

India's currency strengthened 1.4 percent in the third quarter, the most in two and a half years, and National Australia Bank says foreign investors will keep buying.

"India is experiencing relatively strong growth, which should attract inflows," Julian Wee, senior markets specialist for Asia at the lender in Singapore. Gradual lowering of the policy rate should also benefit both local equities and bonds, while leaving a still-healthy carry premium over the dollar and many other Asian currencies, told Bloomberg.

The rupee is under threat due to withdrawal of matured deposits made by the Indian diaspora. As per India’s central bank, the Reserve Bank of India (RBI), $20 billion of this amount will be withdrawn from the country by year-end.

"While we expect the situation to remain largely managed, there could be short-term liquidity mismatches, which could lead to some volatility in the exchange rate," HDFC's Arora told Bloomberg.

This table by Bloomberg FX Forecast Accuracy Rankings shows the most accurate forecasters of the rupee in the four quarters ending Sept. 30.
1 HDFC Bank
2 NAB
3 BMO Capital Markets
4 Scotiabank
5 Wells Fargo
6 RHB OSK Securities
7 Handelsbanken
8 ING

"The RBI will probably be quite keen to keep the rupee somewhat stable against the dollar, which should be fairly manageable given the strong growth rate and the attractive carry," National Australia Bank's Wee told Bloomberg. "We continue to see mild and broad upside in the dollar, but the rupee should outperform within the region."