Like the slogan of a leading plywood brand’s TV commercial goes, the dollar fetching 45 units of the Indian currency may not happen during our lifetimes. Fortunately, bankers and financial experts are less despondent, though they admit it could be months, or even quarters, before the rupee returns to the pre-50 level against the dollar.
This, despite the Reserve Bank of India (RBI) taking a series of measures to boost dollar inflows to prop up the rupee. While its momentum may have been arrested, the slide has continued.
The RBI's first step was raising the ceiling for foreign institutional investment in government and corporate debt by $5 billion each, seven weeks back when the dollar was quoting at Rs50.70.
“It will be another three to six months before the rupee strengthens to 49-50 to the dollar. There are a number of factors against the rupee appreciating: high oil prices and the turmoil in the Eurozone being two major ones,” said Ramit Bhasin, MD and Head of Markets, RBS. All the RBI measures did was cut the volatility, curb speculation and stabilise the rupee around the 52/53 levels, he added.
“They could have acted earlier, so in that sense their measures were a little too late, but what's important is that the RBI has taken some steps.”
On Wednesday, the dollar was fetching even more: Rs52.97. To be fair, some of the RBI's measures did have an impact, especially when the rupee did a bungee-jump to 54.30 to the dollar on December 15 and was threatening to touch 55.
During December 12-15, the Indian currency touched a new low against the dollar on a daily basis. Analysts say this kind of volatility is more damaging than the actual depreciation.
“We expect the rupee to be in the range of 50-52 against the dollar in 2012-13. We do not expect any sharp depreciation in the value of rupee from this range as it has seen most of the damage in 2011,” said Vinay Khattar, Head Research – Retail Capital Markets, Edelweiss Securities.
Bhasin of RBS says that in Real Effective Exchange Rate (REER) terms the rupee
looks cheap and near the 2008 trough, when a dollar fetched Rs48.45.