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Rediff.com  » Business » Rupee fall temporary, to bounce back from H2

Rupee fall temporary, to bounce back from H2

June 07, 2013 19:09 IST

As the rupee breached the 57-level against the dollar on Friday, Deutsche Bank said the fall is temporary and it was not worried about outlook of the Indian unit which is likely to bounce back in second half of 2013.

The domestic currency closed at a fresh 11-month low at 57.06 to the greenback.

The German brokerage said the headwinds for the rupee are diminishing following a cooling off in inflation, which pushes up the real interest rates thus making rupee investments attractive, and a likely correction in current account deficit and healthy foreign fund inflows.

"We are not inclined to worry a great deal about the rupee's near or medium term outlook...the major sources of drag to the currency in recent years - high inflation and high current account deficit - are dissipating rapidly, and will help support the currency," it said in a note.

"We expect the rupee to rally against the dollar in the second half of 2013." The rupee has been depreciating in the recent weeks, touching new lows against the US unit. This has forced policymakers to take steps to arrest the slide.

On Thursday, Finance Minister P Chidambaram tried to soothe the frayed market, saying some other currencies are also losing value like the rupee and that the domestic currency will find its right value soon.

"There is no cause for alarm over the rupee fall, as capital inflows are strong, especially in April and May. I am sure the rupee will find its right value soon," he said.

The expanding CAD, which is expected to rise to a record high of 5 per cent of GDP in FY13, is being seen as one of the factors affecting the rupee, while some watchers point to the overall appreciation in the dollar against global currencies.

Deutsche Bank explained that since the 2008 global credit crisis, the rupee has had three streaks of depreciation but has always bounced back, and risen by up to 30 per cent which has no parallel among Asian currencies.

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