Domestic politics will increasingly drive the fate of the Indian 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."
"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 rupee."
HSBC expects "strong upward pressure" on the dollar/rupee should the reform process falter, but for the pair to retrace its recent gains should the government gain traction with its policies.
