Indian Rupee Headed for Record Low, Skandinaviska Enskilda Says

By Anoop Agrawal

Dec. 12 (Bloomberg) -- India’s rupee will weaken nine percent to a record low by March 31 because of a gloomy outlook for the economy, according to Skandinaviska Enskilda Banken AB.

India’s central bank may have to cut the benchmark interest rate by 1 percentage point to support growth in Asia’s third- largest economy, Magnus Prim, Singapore-based chief strategist at Skandinaviska Enskilda Banken, said in an interview yesterday. Cooling demand for Indian goods from overseas will hurt companies and the rupee, he said.

The currency will decline to 53.50 against the dollar by the end of the first quarter, Prim forecast, the most bearish after Morgan Stanley among 28 analysts and economists surveyed by Bloomberg. The rupee closed at an all-time low of 50.29 on Dec. 1 as international investors sold a record $13.6 billion more of the nation’s stocks than they bought this year.

“Risk aversion is going to remain high, which is why we are bearish on the currency,” Prim said. “The aggressive rate cuts are a sign of the serious concerns on the economy and as such overseas investors are going to refrain from Indian assets.”

Reserve Bank of India Governor Duvvuri Subbarao will reduce the repurchase rate for a fourth time by March by as much as 1 percentage point, Prim said.

The Reserve Bank on Dec. 6 reduced the rate to 6.5 percent from 7.5 percent, the third cut this year. It also lowered the reverse repurchase rate at which it borrows overnight to 5 percent from 6 percent, the first time it has done so since 2003.

Companies Struggling

The rupee closed at 48.45 per dollar yesterday in Mumbai, according to data compiled by Bloomberg. The currency may drop to 49.75 by the end of March, according to the median estimate in Bloomberg’s survey, with Morgan Stanley predicting a rate of 57.00. The currency has dropped almost 19 percent this year, the second-worst performance in Asia after South Korea’s won.

Indian policymakers this month unveiled an additional spending plan to bolster the economy reeling from the global recession and terror attacks in Mumbai on Nov. 26.

Shipments from India in October dropped 12.1 percent to $12.8 billion from a year earlier, according to government data. The last time exports fell was in October 2001, according to Bloomberg data.

“Companies are struggling at the moment which clearly shows that external demand is cooling off,” Prim said. “That will serve on all emerging-markets’ exports including India, and eventually on the currency.”

To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.