"After several years of INR out-performance, a period of under-performance, against both the dollar and emerging market forex in general, is looking likely. We forecast the rupee to end 2017 at Rs 66.00/dollar," it added.
Oil prices are expected to continue the rally amid improving fundamental and technical outlook. While this should support for emerging market forex in general, as a large net oil importer this is bad news for the Indian rupee. However, from a longer term perspective, the rupee is likely to outperform in total return terms, it added.
"We forecast the rupee to average Rs 66.33/dollar in 2018 and depreciate by 1 per cent per year in spot terms over the long term as higher inflation rates necessitate a gradually weaker currency in order to maintain external competitiveness," the report added.
While headline consumer price inflation (CPI) came in at just 2.2 per cent year-on-year in May, BMI Research expects this to mark the low point of the cycle and expects inflation to average around 4 per cent over the long term.
As per the report, the risks to the said outlook are a pick-up in the US economy and continued interest rate hikes, which could send real US bond yields rising back to pre-global financial crisis levels and this would likely lead to dollar strength across the board, particularly relative to emerging market forex.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)