November 23, 2012 / 6:32 AM / 5 years ago

Domestic politics to drive rupee: HSBC

A shopkeeper poses for a picture as he counts Indian currency notes at his shop in Jammu May 16, 2012.Mukesh Gupta/Files

Reuters Market Eye - Domestic politics will increasingly drive the fate of the rupee, much like the Japanese yen or the euro, HSBC says in a note on Friday.

HSBC says its base case scenario is for the government to maintain its reform agenda, but warns the parliamentary process is "fraught with downside risks."

"This debate will be a litmus test for the INR and the reform process," HSBC writes. "If we were to a see a reversal of some of these recent reforms, it would undoubtedly put increasing weakening pressure on the INR."

HSBC expects "strong upward pressure" on the USD/INR should the reform process falter, but for the pair to retrace its recent gains should the government gain traction with its policies.

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