SAILING IN THE UNCERTAIN WATERS
Reeling from unanticipated global risk events in 2016 such as the UK Brexit vote and the election of US President Trump, markets were hoping for a less-eventful 2017. This year, even as global sentiment and growth prospects have improved (IMF has raised its global GDP estimates to 3.5% from 3.4%); the journey has been just as volatile. Market watchers will concur that economic and political risks continue to linger in the US, even as their nature may have undergone a change. Additionally, global trade protectionism and the volatility induced by UK and Eurozone elections continue to raise investor concerns.
Indian markets have clearly not been impervious to these externalities, with the rupee being a case in point
Alongside, domestic drivers have also played a large role in unanticipated INR movements
What do we expect
Notwithstanding outperformance of the USDINR vis-à-vis peers, the rupee remains prone to unexpected moves during the rest of the year. Even as our bias remains for slight depreciation during H2 2017, event-related spikes in the currency cannot be ruled out. Uncertainties persist on several fronts including US rate outlook and its divergence with other advanced economies. Geopolitical tensions including those related to N. Korea and Middle East remain risks. In terms of politics, elections in Germany in September and in Italy by mid-2018 are yet to unfold. Other likely triggers include US President Trump’s much-awaited policy announcements and their implementation.
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