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Rediff.com  » Business » Rupee seen at 57.9 to the dollar

Rupee seen at 57.9 to the dollar

May 21, 2014 14:02 IST

It is felt the rupee will sustain its recent gains, as foreign investors continue to pour in funds. 

Experts say India is better placed than other emerging markets, as the Bharatiya Janata Party-led National Democratic Alliance’s victory in the Lok Sabha elections will boost economic growth.  

A Business Standard median forecast of 10 currency experts shows the rupee is expected to trade at 57.9/dollar in a month. 

It is agreed the Reserve Bank of India (RBI) will keep intervening in the market through state-run banks to absorb dollars, owing to which appreciation from current levels will be limited.  

The central bank has been intervening in the foreign exchange market by buying dollars, and this is capping the rupee’s gains. 

RBI is aware of the impact of increasing rupee liquidity, which will hurt inflation; therefore, it is buying forward contracts, as market players. 

Dealers say on days of high inflows, RBI’s intervention is to the tune of $1-1.5 billion. According to latest published data, RBI purchased about $9 billion from the spot market in March.  

“Given the across-the-board optimism (and confidence) on India and the resultant bullish sentiment across asset classes, it will be cash-dollar demand against cash-and-forward supply of dollars, with RBI absorbing excess supplies to arrest runaway rupee gains. 

The short-term range is seen at 57-59 a dollar,” said Moses Harding, group chief executive officer (liability and treasury management) and chief economist, Srei Infrastructure Finance. He added if all went well, the rupee would rise to 53-55/dollar on a rating upgrade.

On Tuesday, the rupee closed marginally weak at 58.64/dollar, compared with 58.6/dollar on Monday, an 11-month high. 

The rupee weakened due to dollar buying by state-run banks, on behalf of RBI. Besides, dollar demand from oil marketing companies was also seen.  

The new government is expected to present the 2014-15 Budget in mid-June. 

Currency dealers believe till then, expectations of reforms to boost economic growth might lead to more flows from foreign institutional investors (FIIs).

According to data from the Securities and Exchange Board of India, this month, FIIs have net-bought about Rs 12,000 crore (Rs 120 billion) in equities and about Rs 6,000 crore (Rs 60 billion) in debt.  

A few currency experts believe the rupee might weaken from current levels, as a strong rupee will hurt exporters. “RBI might not allow the rupee to appreciate beyond a point because inflation is much higher compared to our trading partners. 

Besides, exports are in the positive zone and that will not be discouraged. So, exporters’ interest will be protected,” said Rupa Rege Nitsure, chief economist at Bank of Baroda.

Latest RBI data shows foreign exchange reserves rose by $1.97 billion to $313.83 billion during the week ended May 9. Such levels were last seen on November 11, 2011.

Neelasri Burman in Mumbai
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