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Rediff.com  » Business » Rupee likely to cross 62 by August-end

Rupee likely to cross 62 by August-end

August 07, 2013 13:16 IST

Rupee likely to cross 62 by August-end

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BS Reporter in Mumbai

The rupee is expected to weaken further from the current levels by the end of this month.

According to currency experts, this will be due to dollar demand continuing from importers and gaining more momentum by the middle of the month.

The median forecast poll from 10 experts, done by Business Standard, shows it is expected to trade at 62.45 a dollar by the end of this month.

On Tuesday, after opening at 61.06 a dollar, it touched an all-time intra-day low of 61.81.

The previous all-time low was on July 8, when it tounched 61.21. Following the central bank’s intervention in the foreign exchange market, there was a rebound of 1.6 per cent from the day’s low, to close at 60.81, as compared to Monday’s close of 60.88.

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Image: A man holds currency notes near a cash counter after withdrawing them inside a bank.
Photographs: Mukesh Gupta/Reuters

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The recoup coincided with the announcement that chief economic advisor Raghuram Rajan was to be governor of RBI after D Subbarao’s tenure ended on September 4.

In a brief media address after the announcement, Rajan said there was no quick-fix solution to the country’s economic problems.

“We do not have a magic wand to make the problems disappear instantaneously, but I have absolutely no doubt we will deal with them,” he said, adding the government and RBI were working together to address the challenges.

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Photographs: Reuters

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Rupee likely to cross 62 by August-end

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The rupee has depreciated about 12 per cent since the beginning of the financial year (April 1).

The country is facing a high current account deficit; it was a record high of 4.8 per cent of gross domestic product in 2012-13. For three years, the CAD has been much higher that the comfort zone of the central bank, of 2.5 per cent.

The central bank had raised the marginal facility rate by 200 basis points to 10.25 per cent, while capping banks’ borrowing from the Liquidity Adjustment Facility (LAF).

Banks are now allowed to avail only 0.50 per cent of their net time and demand liabilities from the LAF window.

These moves were aimed at making the rupee expensive, to curb speculation in the foreign exchange market from further weakening it.

However, liquidity is still comfortable and short-term rates have eased.

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Photographs: Vivek Prakash/Reuters
Tags: CAD , LAF

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“The measures taken by the regulators to support the rupee have fallen short. Most of the time, RBI’s intervention was in a small way and not strong enough to restrict the currency movement.

As a result, investors lost confidence in the rupee,” said Pramit Brahmbhaat, chief executive of Alpari Financial Services (India).

There are concerns that more liquidity tightening measures are in the offing.

“A cash reserve ratio hike is in the offing, along with some government announcement on either boosting exports or reducing imports,” said Anjali Verma, economist at MF Global India. The news of Rajan’s appointment was well received by the Street.

“The new governor will take steps to boost growth and that will be positive for the rupee,” said the treasury head of a state-run bank.

The yield on the 10-year benchmark bond 7.16 per cent 2023 ended unchanged at 8.2 per cent on Tuesday. However, during intra-day trade, it had risen to 8.3 per cent.


Photographs: Reuters

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