Deutsche Bank Chief Economist, Dr Taimur Baig Ph.D in a report released minutes ago said that Indian Rupee will touch 70 against the USD.
With foreign flows becoming scarce, inevitable and painful current account adjustment is underway, with interest rates rising, consumption and imports falling, and GDP growth rate decelerating. But the bottom may not be near; we see the ongoing feedback loop under which financial market stress causes major economic setback, which then causes further selloff, continuing for now. No single solution to the ongoing challenges exist, and it is unlikely that financial market unrest would cease conclusively in response to stabilization measures until underlying fundamentals improve substantially and global markets move past taper-related volatility.
We continue to believe that fundamentally the rupee is undervalued and has overshot its equilibrium level substantially (perhaps by 10% at 64 to the USD), but as numerous episodes of past currency crises have amply demonstrated, under a scenario of deep pessimism, currencies can overshoot substantially and remain so for a long time. India, we fear, is entering such a zone. We now believe that the rupee could touch 70 to the USD in a month or so, although we expect some revival of the currency by the end of the year as the reality of taper turns out to be less disruptive down the road than it is now, and the current account deficit continues to decline.
