  |
|
eb. 13 (Bloomberg) -- India’s rupee will weaken almost 10 percent to a record low of 54 to the dollar by the end of the year as the worldwide credit crisis curbs foreign direct investment, HSBC Holdings Plc said.
The rupee may also extend last year’s 19 percent slide as employers cut jobs overseas amid a global recession, reducing remittances from Indian workers abroad, Richard Yetsenga, HSBC’s Hong Kong-based strategist, wrote in a research report today. The U.K. bank revised its rupee forecast from 45, HSBC’s Singapore-based economist Robert Prior-Wandesforde, who co-wrote the report, confirmed in a phone call.
“We expect the slower moving remittance and FDI flows to now start to show the strain,” wrote Yetsenga. “Our estimates suggest FDI into Asia could fall to roughly zero this year. While that may be overly pessimistic, the fall in FDI should certainly be spectacular for global reasons.”
The rupee strengthened 0.2 percent to 48.745 a dollar as of 9:24 a.m. in Mumbai, climbing from a two-week low, according to data compiled by Bloomberg. HSBC’s forecast is the most bearish of all estimates in a Bloomberg News survey of 25 analysts.
Foreign direct investment in developing nations will drop by $180 billion, or 31 percent, this year as a global recession prompts multinationals to cut spending on factories and mines, the World Bank said last month.
Renault Pulls Out
India received $32 billion worth of foreign direct investment in the first 11 months of last year, compared with $18 billion in all of 2007, according to government data.
“The boom in FDI is long overdue, but cannot last, given the state of corporate finances globally,” Yetsenga wrote.
Renault SA, France’s second-largest carmaker, may abandon a factory project in the southern Indian city of Chennai, Chief Financial Officer Thierry Moulonguet said yesterday. The French company said it is reducing capital investment by 20 percent.
Deposits at the nation’s banks by Indians living abroad fell to $39.5 billion at end-November, from a record $43.9 billion reached in October 2007, according to data released last month by the Reserve Bank of India.
Central bank intervention may temper rupee losses in the short term and may not be sustainable, Yetsenga wrote.
India’s foreign-exchange reserves fell $7 billion at the end of January to $239 billion from $246 billion at end-2008, according to central bank data, indicating the Reserve Bank of India sold dollars to stem rupee losses.
Central banks intervene in currency markets by arranging sales or purchases of foreign exchange to influence rates.
Offshore non-deliverable forward contracts indicate traders are betting the rupee will weaken to 50.47 against the greenback in 12 months. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
To contact the reporter on this story: David Yong in Singapore at dyong (at) bloomberg.net; Patricia Lui in Singapore at plui4 (at) bloomberg.net
Last Updated: February 12, 2009 23:41 EST
|
|
|
