StanChart upgrades rupee; says India may miss fiscal target

Standard Chartered upgrades its short-term rating for the Indian rupee to “neutral” from “underweight”, and revises its end-September forecast to 56 from previous forecast of 57.50, adding the cross has “likely” hit the high for the year.

StanChart cites India’s authorities’ steps to promote capital inflows and s more benign global environment in a report dated Thursday.

The bank says too early to upgrade rupee to “overweight”, says currency in REER terms is only 3% below the average of the past decade and cites risks from growth and current account deficits. Maintains end-2012 target at 55.50.

The bank also adjusts forecasts for the benchmark 10-year bond yield to 8.50% by end-September versus previous 8% forecast.

Standard Chartered expects banking system liquidity to remain within the RBI’s comfort zone, and thus says bond purchases via open market operations “may not be required”.

Bank adds “high likelihood” that fiscal deficit will widen to 5.5% of GDP from current government target of 5.1%, implying additional borrowing of Rs 40,000 crore.