Structural issues to keep rupee weak: Analysts

Mumbai: The rupee is likely to remain weak in the near-term as factors like low capital inflows and high current account deficit are expected to take their toll, industry experts feel.

“Unless structural issues like high current account deficit (CAD) and balance of payment (BoP) situation improve, the rupee is likely to remain weak in the near future,” Indian Overseas Bank general manager, treasury, T S Srinivasan told PTI. The currency may touch Rs 53.50-Rs 54 levels against the American dollar in the next two months, he said.

While the CAD is likely to touch 4.3 percent of GDP in FY12 compared to 2.6 percent in FY11, BoP is likely to turn negative for the first time in the past three years in FY12.

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The domestic currency, which touched Rs 52.07/08 to the dollar on Friday, is also coming under pressure on the back of low capital inflows.

“Due to lack of clarity on the issue of taxation and some provisions of the proposed general anti-avoidance rule (Gaar) foreign institutional investors are on a wait and watch mode, which impacts the inflow to the country. Unless there is more clarity on these issues, rupee will remain under pressure,” IndusInd Bank global markets group head Moses Harding said.

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As to possible intervention by the RBI to check the rupee fall, he said probability of intervention was strong.

“The RBI is likely to intervene if the rupee weakens further. But it has to be substantial to be effective,” Harding added. Between last November and March, the RBI pumped in nearly $10 billion to prop up the rupee.

Earlier, a research note of Religare Macquaire Wealth Management also forecast that the rupee is likely to be under pressure in the near-term amidst weak global demand and sticky imports.

The banking officials also said that the government has to take steps to attract FIIs to finance the widening CAD, which will support the domestic currency.

PTI