The rupee fell to a record low against the US dollar on Wednesday, breaching 54.30, weighed down by a sluggish domestic economy and risk-averse global sentiment.
Sean Callow, senior currency strategist at Westpac Banking Corporation, Sydney said that this is not a great environment to run a current account deficit and thus it is difficult for the rupee to be reseliant on capital inflows from foreign lenders. ” New highs on USD/INR mean fresh air to the top side,” he said, adding that “Net foreign purchases of Indian equities YTD $8.8 billion means lots of capital could be pulled from India if the mood doesn’t improve. A rare positive is lower oil prices.
“Suspect only radical steps by RBI – or sudden action by foreign central banks and/or G20 – will stop a push through 55 and quite possible higher.”
Deepak Kundo, dealer at forex and rates, ING Vysya,Mumbai said “I think the rupee is likely to touch 56 to the dollar by June-end. As of now, the only support can come from the Reserve Bank of India. There is no dollar supply in the market and exporters are not selling.”
Indranil Pan, chief economist at Kotak Mahindra said “The stress on Indian currency deriving out of the worries from the global conditions have increased significantly. The issue now focuses squarely on capital flows and if a heightened risk aversion globally would significantly lead to a drying up of the capital flows.
“Significant firming of the dollar is also adding to the rupee depreciation pressures. Attempts by the RBI to contain rupee depreciation is only likely to worsen rupee liquidity conditions. A difficult scenario presently for the policy makers.”
Ashtosh Raina, head of foreign currency trading at HDFC Bank said: “The level of 55 rupees to a dollar is very much possible. The RBI can intervene strongly. But, for the rupee, given the global environment, and the dollar strength, RBI can contain the fall, but not control it.”
Radhika Rao, economist at Forecast says “Given the one-sided bias in the markets, there was little that the central bank could unilaterally do, especially as EUR/USD is tumbling fast and stark losses in the stock markets.
“USD/INR in unchartered territory, approach of 55.00 doesn’t seem too distant.”
The rupee will hover near record lows against the dollar for the next month or so, but a further significant fall is unlikely following a near 10 percent slide in the currency since February. The currency is expected to appreciate gradually after June to around 50 by March 2013, a Reuters poll of more than 20 respondents shows.