StanChart lowers rupee rating to neutral from overweight

Standard Chartered Bank said on Monday it had lowered the short-term rating on rupee to neutral from overweight as a massive deterioration in global sentiment has outweighed signs of stability in domestic inflation.

The possibility of “a difficult transition” for the Reserve Bank of India from inflation to growth risks if economic sentiment worsens in advanced economies meant more pressure on rupee, the bank said in a research note.

In the mid-quarter review on 16 September the RBI said it was too soon to ease back from its anti-inflationary bias. The RBI has already raised rates 12 times in 18 months.

The local currency rupee has lost over 11 percent from its 2011 high hit late July and remains the worst performer amongst major Asian peers.

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The unit has also shed 4.4 percent of its value last week, its biggest fall since the week ended July 12, 1996.

These sharp increases in rupee volatility over the past few days have added to the “risks of significant intervention (by the RBI)” and is an “important swing factor” for the rupee, the bank said.

However, Subir Gokarn, a deputy governor of the central bank, last week said the RBI would maintain its stance of intervening in the foreign exchange market only to reduce volatility.

The bank has forecast the rupee at 51 to a dollar in end-December. But it expects the local unit to gain subsequently and trade at 45 to a dollar by end of March 2013. It has retained its “overweight” rating in the medium term.

The rupee was at 49.55 to a dollar in recent trades, weaker from its close 49.42/43 on Friday when it had touched 49.90, a level last seen May 14, 2009.

Reuters