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

Domestic politics to drive rupee: HSBC

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.

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

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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