The rupee is expected to remain unusually stronger for about a month as inflation concerns are likely to keep the Reserve Bank of India away from the market.
The currency has risen 4.8 per cent in the last one month.
Dealers said once the RBI gained adequate comfort on the inflation front, it would intervene to bring the rupee to a level that it would consider supportive of exports.
RBI has not been absorbing dollar supplies from the market for the last several days as it leads to infusion of rupee liquidity, which goes against its current tight monetary policy stance.
"The rupee has to revert. It cannot remain as strong for too long. The underlying macroeconomic indicators, be it current account deficit, fiscal deficit or domestic inflation, all point to rupee weakening," said Ajit Ranade, chief economist, Aditya Birla group.
"The absence of intervention is likely to continue for the entire month of April, maybe longer. After May, we expect more stable levels. Though it is very difficult at this moment to say what those levels will be," said Ashish Parthasarthy, head of trading, HDFC Bank. HDFC Bank had about two weeks ago said the rupee would touch Rs 44.50 per dollar by the end of June 2007.
Some of the forecasts, subsequent to the sharp appreciation in the rupee over the past two days, suggest that the rupee would be in the range of Rs 43.50-44.00 per dollar by the end of 2007. "Standard Chartered's official forecast for the rupee for quarters ending June, September and December is Rs 43.60-44.00 per dollar and it still stands," said Agam Gupta, head, trading, South Asia, at the London-headquartered bank.
Dealers said the rupee was now overvalued by as much as 13-14 per cent on the basis of the six-country, trade-weighted real effective exchange rate index.
The rupee today fell 0.2 per cent to close at Rs 41.97 per dollar, after rising to a high of Rs 41.64 earlier in the day, with importers and companies in need of foreign exchange to pay overseas debt buying cheap dollars.
Some companies who borrowed about over three years ago when the rupee was in the Rs 46-47 per dollar range would see the exchange gains offsetting part of their interest cost.
"The appreciation in the rupee is unusual. It is on account of the RBI not intervening in the market. At the moment (rupee valuation) depends on what people expect the RBI to do, rather than underlying macro indicators. The rupee has appreciated 10 per cent in the last 12 months. It cannot remain at the same level, it has to weaken," Ranade said.
