HSBC Says Domestic Politics Will Drive Rupee

November 23, 2012 9:37 AM GMT

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(Photo: Reuters)<br>Rupee
(Photo: Reuters)
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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."

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"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.

Copyright 2012 Thomson Reuters. All rights reserved.
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