The Indian currency continued to weaken against the US dollar for the third straight day in a row on Wednesday. Analysts see intense volatility in the currency markets in the near term, but assure investors that the Reserve Bank of India (RBI) will not let it depreciate beyond a point.
The rupee is likely to inch closer to 63 per dollar in the near term as the US Federal Reserve is expected to maintain its view on interest rates, but RBI may not let it weaken beyond 64/USD, say experts.
"In case the rupee falls sharply below 63, expect the Reserve Bank of India to intervene and curb volatility. The rupee looks unlikely to go below the 64 level," said Manisha Gupta, Commodities & Currency Editor, ET Now.
The rupee fell by six paise to a fresh two-month low of 62.82 in early trade. Forex dealers attributed the fall in the rupee to the dollar's strength against other global currencies, as well as sustained capital outflows, but a higher opening in the domestic stock market capped the rupee's fall, reports PTI.
But from a long-term perspective, analysts see the rupee appreciating against the US dollar and other currencies as economic fundamentals remain intact.
"The rupee at this point in time looks to be slightly getting weakened against the dollar, but if you compare the rupee vis-a-vis non-dollar currencies, it has appreciated a lot," says BP Singh, ED & CIO Equities, Pramerica MF.
"One data which came out on Tuesday was very interesting, which highlighted that in the month of January, the RBI ended up purchasing dollar to the extent which is equivalent to what it did last time in January 2008 - they purchased close to $12 billion plus of dollars," he adds.
A careful analysis indicates that the pressure on the rupee to appreciate is very high, though the central bank is keen to ensure that the rupee does not appreciate at this point in time.
Singh says if we take a medium to long-term view, the currency is likely to appreciate from here, and that obviously will have some amount of impact on the export oriented companies or those who are sensitive to the currency going forward.
The rupee was at 60.85 levels against the US dollar exactly a year ago. But against currencies like euro it has appreciated sharply to the current levels of 67.44/euro from 84.45 a year ago, said media reports.
"In the immediate run, I do not see it (rupee) going much lower. It can go much lower only if this turns into a major global trauma. Well, nobody knows that. So chances are, while the RBI on one hand did not want to get much stronger than let us say 61.50, clearly they do not want to get too volatile and go below 63.50 in my view," says Jamal Mecklai of Mecklai Financial Services.
"So, the RBI will be intervening right now. And I do not think that the rupee is going to collapse. We have to really wait and see what is happening," he adds.
Forex dealers are of the view that we do need a much more competitive exchange rate, because the growth and employment are to be optimised. We need a much more competitive economy that no other economy in the world has grown at 9%-10% per annum consistently without a globally competitive manufacturing sector and booming exports.
"The exchange rate would depends on the central bank and how seriously it takes the issue of the exchange rate in relation to growth and what the Prime Minister wants, Make in India and Finance Minister is saying we need 9-10% growth for an indefinite future and so on and so forth, so that is sort of one side of it," says AV Rajwade, Director, A.V. Rajwade and Co. Pvt. Ltd.
"I am bearish on rupee and in my view the fair value would be of the order of 70," he adds.
The dollar index is gaining strength against a basket of currencies, including the rupee. However, experts feel that the rupee is likely to appreciate against a basket of currencies rather than depreciate in the long run. Here's why:
Rashesh Shah, Chairman & CEO, Edelweiss Group.
It is actually very hard to say whether the rupee has actually weakened or not, because the rupee has appreciated significantly and we have seen the implications in a few of the IT results and of the cross currency as well.
The rupee is weakening vis-a-vis the dollar, but is strengthening vis-a-vis the euro, vis-a-vis the yen, and quite a few other major currencies. Compared to all other emerging markets, the rupee is still a lot stronger.
I do not think we should look at only the rupee-dollar as an indicator of the rupee strength. We should look at a composite basket, and on that count we think the rupee has actually strengthened a little bit in the last year.
And, as long as the US dollar keeps on strengthening, the headline rupee-dollar rate will keep on showing some weakness as you go forward.
Source:- economictimes.indiatimes.com
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