Barclays pegs Re at 59 on poll-push, lower CAD & inflation

The rupee is likely to rally to 59 in the short-term on narrowing current account deficit, higher inflows from foreign investors and easing inflation, Barclays said in a report. The report also said there could be a pre-poll rally in all asset classes in the country as investors expect a pro-market BJP government to form the next government.

The rupee ended at a seven-month high of 60.85 yesterday. Today, it opened at 60.65 on higher capital inflows. "We think recent positive rupee momentum, on the back of a narrowing current account deficit, softer inflation prints, enhanced policy credibility and strong capital inflows, will continue in the near-term," Barclays said.

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Barclay's has revised its one-month dollar/rupee forecast to 59 from 61. It has also lowered the target on short dollar/rupee trade recommendation to 59 from 60.5 and stop-loss at entry level of 62.5 from 64.

"For FY13-14, we lower our current account deficit forecast to USD 38 billion, or 2.1 percent  of GDP," it said. Barclays' believe the current account deficit will continue to adjust and remain within a 'safe' limit at 2.5 percent in FY14-15 at USD 50 billion. It further said the international investors have been encouraged by lower rates of inflation, contributing to higher real interest rates and providing a more constructive backdrop for businesses and their investment decisions.

However, it believes the upcoming elections remain a risk for the rupee and so has kept 3, 6 and 12-month dollar/rupee forecasts unchanged at 61.