7/28/2019 Rising Forex Inflow May Lift Re to 52(29!12!12)

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Rising forex inflow may lift Re to 52-53

against $

Beena Parmar

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TOPICS

economy (general) foreign exchange

December 28, 2012:

The rupee is likely to gain to 52-53 levels against the dollar by March-end and may evenappreciate to 46, say forex market experts and economists, as rising investor interest in India willpush up foreign-exchange inflows.

This year, the twin current account and fiscal deficits, high inflation, fall in exports, ratingdowngrades and outlook change, gold imports, high international crude oil price, the Euro-Zonesovereign-debt crisis and the US fiscal cliff had weighed on the Indian currency.

Ups and downs

The rupee depreciated about 3 per cent since January this year against a decline of about 17 percent in 2011. The currency touched its lowest at 57.32 on June 22 due to concerns about the twindeficits even as Standard and Poors revised its outlook on India to negative.

However, the domestic unit recovered to 55 levels in July as a narrowing trade deficit and higherforeign-exchange inflows helped eased concerns about the countrys fiscal situation.

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7/28/2019 Rising Forex Inflow May Lift Re to 52(29!12!12)

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After September, foreign institutional investment gathered pace as the Euro Zone took measuresto tackle its crisis, the US Federal Reserve extended quantitative-easing programme, and theUnion Government relaxed rules for foreign direct investment and divestment; subsequently therupee rose to 51-53 levels. It touched a high of 51.35 on October 5.

However, concerns about the US fiscal cliff that entails huge spending cuts and tax increases at atime when the economy is struggling to grow, inability of the Euro-Zone members to find asolution and uncertainty regarding implementation of reforms in India reversed the gaining trend.Currently, the rupee is trading at 54-55 levels.

It is the growth prospects which seem to be having the larger weight in determining rupeemovement. And the dimming prospects have led to depreciation of the rupee in November andDecember, said Biswa Swarup Misra, Associate Professor, Xavier Institute of Management,Bhubaneswar.

Overall, India this year saw an inflow of over $24 billion. Market experts expect this to continue

in the year ahead.

2013 trend

YES Bank Senior Economist Vivek Kumar said: Implementing key structural reforms would be

critical for improving rupees long-term appeal. We see rupee moving on a trend basis towards52-54 in first half of calendar year 2013..

N.S. Vekatesh, Head of Treasury, IDBI Bank, believes that India had a lot of activity (economic)happening and was in a better position than other countries.

With US fiscal cliff problem likely to get resolved, we will be in the risk-on mode and liquidityis assured. This will increase forex inflows to emerging markets like India and China. Sinceinvestors will be wary of the new Chinese regime, India is the best investment destination, hesaid.

According to YES Banks Kumar, the volatile trend in the rupee is here to stay. It is likely to

end in the range 52-54 in FY13, he added.

Growth-inflation dynamics, the central banks monetary stance, fiscal numbers, exports, ratingactions, developments in the US and Europe and international crude oil prices will be among themajor factors for the rupee movements ahead.

IDBIs Venkatesh expects the rupee to touch 46 levels by December 2013. If growth measuresand Budget fall in place, I definitely see it reaching 46 levels by December next year, he said.

However, Prof Misra maintains that though market players expect the rupee to touch 51-52levels by March 2013, the currency had reached its true valuation and 54 levels looked morerealistic.