American investment bank and leading brokerage house Goldman Sachs on Wednesday said it sees the current rally in the rupee to continue with the currency closing the year at Rs. 51 to the US dollar on account of improving CAD (current account deficit) and recent reforms by the government.
Rupee closed at 52.2 against the dollar on Wednesday.
It has pegged the CAD at 3.5% for the ongoing fiscal. “We remain positive on the rupee due to an improving CAD and greater capital inflows, in part due to the recent reform efforts by the government, as well as the global easing of liquidity. We maintain our 12-month rupee target at 51 to the dollar,” Goldman said in a note.
Stating that CAD had peaked last fiscal it said, “We continue to maintain our earlier forecast that the CAD may have peaked in FY’12, and will likely trend down due to sharp rupee fall. We expect the FY’13 CAD at 3.5% of GDP, down from 4.2% in FY’12.”
The rupee has been gaining since July, after hitting a life-time low of 57.13 in mid-June. Since the beginning of the year, the rupee has gained over 7%, and still it is down 18% from its pre-August 2011 highs. The rupee closed 2011 as the biggest loser among the BRIC currencies and still continues to be so.
The CAD, which is the difference between foreign currency earned and expended, touched a historic high of 4.3% of GDP for the full year in FY’12, while in the second quarter of last fiscal it had touched 4.5% of GDP.
Goldman said while CAD in the first quarter was higher than expectations, it was an improvement over the fourth quarter, leading to a positive balance of payments.