Rupee free fall against dollar likely over, say forex dealers
RBI measures, passage of a few crucial bills in Parliament seen restoring investor confidence in currency
The rupee, which hit a record low of 68.85 a dollar on 28 August, has staged a dramatic recovery and since risen 5.5% to 65.25 on 6 September.
RBI measures, passage of a few crucial bills in Parliament seen restoring investor confidence in currency
The rupee, which hit a record low of 68.85 a dollar on 28 August, has staged a dramatic recovery and since risen 5.5% to 65.25 on 6 September.
Updated: Sun, Sep 08 2013. 10 51 PM IST
Mumbai: Bankers are saying the worst is over for
India’s currency. The rupee, which hit a record low of 68.85 a dollar on
28 August, has staged a dramatic recovery and since risen 5.5% to 65.25
on 6 September.
The Reserve Bank of India (RBI) on 28 August allowed oil
marketing companies to buy dollars from the central bank through a swap
window and followed this up on 4 September with allowing banks to swap
their dollar deposits with it at a special concessional rate of 3.5% for
at least three years and permitting local banks to raise 100% of their
core capital from overseas all on 4 September. Such borrowing can also
be swapped with RBI at 1% less than the market rates.
These measures and the passage of a few crucial bills in Parliament have restored investor confidence in the currency.
The rupee won’t go anywhere close to Rs68 per dollar in
the next three to six months as dollar inflows from last week’s RBI
moves and a likely shrinking trade deficit will support the currency,
according to Agam Gupta, managing director, fixed income trading India, at Standard Chartered Bank Plc.
“I expect at least $15 billion to come from
RBI’s recent moves on foreign currency deposits and allowing banks to
raise higher amount of capital from abroad. Trade deficit is also likely
to shrink and the government may announce more measures to curb gold
and oil imports,” Gupta said, adding that all these measures mean that
“the worse is over for the rupee.”
The trade deficit is the difference of a country’s exports and imports.
Gupta
expects India’s deficit to ease to $10 billion in August from $12.27
billion in July as the value of exports rise and imports remain stable.
The rupee’s “secular downward move” is over, said Ashish Vaidya, head fixed income, currency and commodity trading, India, at UBS AG.
“We
saw a phase in which the rupee fell sharply and more than other emerging
market currencies. That phase is now over,” Vaidya said. “Yes, there
are risks like a tapering by the US Federal Reserve and higher oil
prices because of a possible US strike on Syria, but more or else the
crisis is behind us.”
Higher
oil prices are likely to worsen India’s current account deficit, which
has ballooned to a record $88.2 billion or 4.8% of gross domestic
product (GDP) in fiscal year 2012-13. Oil constitutes 80% of India’s
imports.
Vaidya expects the rupee to be around 65 per dollar with a broader 62-65 per dollar range in the next three to six months.
To
be sure, bankers do not expect the rupee to rise sharply from current
levels. However, the sharp fall seen in the past four months is unlikely
to be repeated. From 53.80 a dollar on 30 April, the rupee slumped
21.84% to 68.85 on 28 August.
The sentiment towards the Indian currency has turned for the better, said Manoj Rane, managing director and head of fixed income and treasury at BNP Paribas SA’s Indian unit.
“From
here on, if the currency has to appreciate, we will have to see real
capital inflows coming in,” Rane said. “I would think the RBI should
target to keep the rupee value at Rs 65 per dollar because in times of
global uncertainties it is better than the currency is a bit
undervalued.”
A
proposal from the BRICS (Brasil, Russia, India, China and South Africa)
nations countries to launch a $100 billion currency reserve fund also
arguers well for the rupee, according to Jayesh Mehta, managing director and country treasurer at the global markets group at Bank of America-Merrill Lynch.
On
Thursday, the BRICS group announced the launch of a $100 billion
currency reserve fund to tide over the likely end of the US Federal
Reserve’s stimulus package. India will contribute $18 billion to the
fund.
“It
will create a buffer for the US tapering,” Mehta said, adding that he
also expects $15 billion to $20 billion to come through bank deposits
and fund raising from banks.
Besides
the moves by RBI, two important developments in Parliament—the passage
of the pension reform legislation that allows foreign direct investment
of up to 26% in the sector and gives statutory power to the sector
regulator and the land acquisition Bill—has also brightened investor
sentiment.
No comments:
Post a Comment