Rupee stability key to relaxation of India’s gold import curbs

The rupee has come through the recent EM turbulence largely unscathed. But the authorities have hinted at the possibility of easing the gold import curbs that have reduced the trade deficit and thereby supported the currency. We think policymakers will proceed cautiously, with rupee stability their main concern. On this basis, we expect the rupee to end 2014 close to its current level relative to the dollar. However, if the curbs are relaxed prematurely, a weaker outturn is more likely.