The Indian rupee will extend its two-year-long weakening streak this year, dragged down by an ongoing economic slump that has defied easing measures from policymakers, as well as by bets for a stronger dollar, a Reuters poll showed.
After a terrible 2018, losing almost 10 per cent, the rupee - in line with a sell-off in other emerging market assets - fell 2.6 per cent in 2019, largely due to an escalation in the US-China trade war that pushed investors to shelter in US assets.
The rupee has also suffered from persistent weakness in the domestic economy, which has failed to recover despite aggressive rate cuts by the Reserve Bank of India and supportive fiscal measures from the government.
That downward trend is unlikely to reverse anytime soon, according to the January 3-9 survey of over 50 strategists, which showed the currency would in three months trade a touch below where it was on Thursday, around 71.25 per dollar.
The rupee is expected to weaken over 1 per cent to 72.00 per dollar in a year, lining up with expectations in the wider poll for the dollar's dominance to continue.
While the latest year-ahead consensus forecast for where the rupee will trade against the dollar was the same as in the December poll, nearly two-thirds of around 40 common contributors from last month either downgraded or kept their forecasts unchanged.
"The Indian rupee was one of the only three major Asia ex-Japan currencies to depreciate against the dollar in 2019. The rupee's decline was largely driven by domestic factors, namely deteriorating economic growth and financial sector woes," noted Derek Halpenny, head of research at MUFG.
"These problems are not going away in 2020, which will not only weigh on growth but also reduce the attractiveness of Indian assets versus other high yielding assets in the region."
Now worried about a persistent rise in inflation, the central bank kept its key interest rate on hold at 5.15 per cent last month after cutting rates at five consecutive meetings in 2019. It is expected to hold rates again in February.
The Indian government is expected to announce more fiscal stimulus in its upcoming budget on February 1, threatening to widen the deficit even further and pressuring the rupee.
"Currency markets are likely to be a little cautious about bundling India together with the list of markets that are getting their act together. There is, for one, considerable concern about a fiscal overrun for 2019-20," said Sakshi Gupta, senior economist at HDFC Bank.
Still, one-third of strategists polled expect the rupee to strengthen against the dollar this year.
They include Yogesh Kalinge at A K Capital Services, who had accurately predicted at the beginning of last year where the currency would end 2019.
"We believe USD/INR will remain in a tight range with a slight appreciating bias," Kalinge said. "That is based on our expectation of the Federal Reserve maintaining an accommodative policy through the year."