Reform prospects are bleak ahead of the 2014 general elections, a report put out by Standard Chartered Bank to its research clients has said.

This is even as quicker policy reforms are needed to substantially ease upside pressure on USD-INR.

In the absence of quicker policy reforms, investor jitters related to India are likely to increase given memories of the earlier policy analysis and its impact on growth, said the SCB research note.

SCB has forecast USD-INR at 60.5 at end December 2013 and 61 at end March 2014.

Any non-resident Indian bond issuance may provide a short-term reprieve for the rupee, but such measures are unlikely to be game changers.

NRI bonds may fail to attract substantial inflows unless they are denominated in US Dollars, the research note said.

At the same time, the RBI has expressed reluctance to bear the forex risks associated with such bonds.

Standard Chartered Bank has a positive outlook for the trade deficit.

The bank expects the trade deficit to narrow by $ 3-4 billion in July-September quarter.

This is because gold imports are expected to slow down due to the measures announced by the RBI and government in the past one month. Also, exports are expected to improve on the back of better global growth.

However, this may fail to provide substantial balance of payments relief unless the government takes steps to boost capital flows, the SCB research note said.

The policy announcements that could instill investor confidence include natural gas price hike, revamped FDI policy and introduction of insurance/pension bill in the next Parliament session.

As for forex strategy, the SCB research note has advised Indian exporters to stay sidelined for now on USD-INR.

It has strongly recommended that importers maintain high short-term forex hedge ratios on USD-INR.

Srivats.kr@thehindu.co.in

(This article was published on June 24, 2013)
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