is set for its worst monthly loss in six years and some analysts warn of more pain to come. JPMorgan Chase & Co expects it to approach the record low hit last October by year-end, while Nomura forecasts the currency to finish 2019 at 72.5 per dollar. That’s weaker than the median estimate of 71 in a Bloomberg survey and Wednesday’s opening level of 71.49.
Here are some of the reasons behind the currency’s rapid reversal:
Demand for everything from cars to cookies has waned as India’s lingering shadow-banking crisis weighs on private consumption, which accounts for almost 60% of the gross domestic product. And the increasingly bitter trade war has complicated the government’s task of re-igniting Asia’s third-largest economy.
Not surprisingly, data due Friday will likely to show that gross domestic product slowed in the June quarter, to 5.7%.
“Fundamentals remain challenging for the rupee, and it will keep depreciating given the global and local headwinds,” said Ashish Vaidya, head of trading at DBS Bank Ltd. in Mumbai. India no longer enjoys “a premium” over other emerging markets, he said.
Foreigners have pulled $3.8 billion from local shares since July, as a tax on the super rich announced in the budget last month combined with the risk-off mood triggered by the trade conflict.
While the government scrapped the levy Friday to prevent a vicious cycle of capital outflows and a weakening currency, the withdrawals have persisted this week.
Large outflows have fueled the rupee’s weakness and the size of the drop “has caught a lot of people by surprise,” said Mitul Kotecha, senior emerging-markets strategist at TD Securities in Singapore.
Rupee’s fortunes are also getting linked to the moves in the yuan, according to JPMorgan, which has moved away from its call of rupee
outperformance against the more-trade oriented currencies like the Korean won.
“If the CNY continues to depreciate against the USD, as we expect, we believe the rupee will depreciate virtually lockstep with the CNY,” analysts including Sajid Chinoy and Jonathan Cavenagh wrote in a recent note.
Weak fundamentals aside, the currency is also in a seasonally weak month. The rupee has slid an average 2.3% in August over the past nine years, data compiled by Bloomberg show. Yet this time, the losses are much larger than usual and have erased gains accumulated in June and July.