The Indian rupee has been rising steadily over the last three weeks, after touching a nadir in the summer. The reintroduction of the reforms mantra by finance minister P Chidambaram has hastened its ascent, bringing cheer to exporters and gold buyers.
However, in view of the ongoing uncertainty in Europe and a question mark over whether the government would be able to go through with the announced reforms steps, may mean that this appreciation may not continue for long, warn market analysts.
“In our view, the complex political and weak fundamental backdrop makes new rupee gains from here vulnerable to a swift reversal into year-end,” said Samiran Chakraborty, research head, Standard Chartered. “We make modest downward revisions to our dollar-rupee forecasts to end-2013 at Rs. 53 for the year-end 2012 and 54 for mid-2013.”
Only if the reform announcements translate into projects and investments, can the currency sustain at the current levels in the long term.
“Most of the news about reforms are now discounted by the market. Now actual flows have to take place for further direction,” said Hari Chandramgathan KK, a dealer at Federal Bank. “Expect some consolidation towards 52.40/53.20 levels before next major move.”
“The rupee is unlikely to stay in the 51-52 range for long because concerns are still there in euro zone,” said Goenka. “Also, on the domestic front, we are yet to see the implementation of the measures announced by the government. We expect rupee to trade in the 53-54 range in the next three months,” he said.
Several concerns remain. Exports are falling at a faster pace than imports. India’s current account deficit in the June quarter stood at a high 3.9% of the gross domestic product — albeit lower than the 4.5% seen in the March quarter. Also, high crude oil prices can still throw a spanner in the works.
Ending a five-day rising streak, Indian rupee fell on Friday, closing at R51.9 from Thursday’s close of Rs. 51.7. Intra-day, it did touch Rs. 51.3 — its highest since April 13. During the week, it gained 1.9%, marking its longest winning stretch since a five-week run that ended on February 5. Helped by dollar inflows in anticipation of more big-ticket economic reforms by the government, the rupee has gained Rs. 1.77 against the US dollar over the past five sessions.
The rupee has gained for five consecutive weeks, ever since India’s reforms drive began anew last month. The initiatives continued on Thursday when the government announced proposals to attract foreign investment into the pension and insurance sectors.