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Rupee likely to remain weak

As the Indian Rupee touched its five-year low to breach the Rs 47 mark against a US dollar during the intra-day trade on Monday, it is likely to remain weak for the rest of the financial year, reports Sandeep Singh.

business Updated: Sep 30, 2008 23:05 IST
Sandeep Singh

As the Indian Rupee touched its five-year low to breach the Rs 47 mark against a US dollar during the intra-day trade on Monday, it is likely to remain weak for the rest of the financial year, experts said.

“The import bill is rising faster than export bill leading to net outflow of foreign exchange,” said Madan Sabnavis, chief economist, NCDEX.

The import bill is rising because the benefit of the fall in price of the Indian basket of crude oil is lower and not in line with the fall of price of the international crude oil.

Also the foreign institutional investors (FIIs) have remained largely negative on inflows in the current year. Since January 1 this year, there has been a net outflow of Rs 81,739 crore.

“They are expected to remain negative on inflows as they close their account in December and pay dividends to their owners,” he said.

As a result, there will be redemption pressure on FIIs over the coming months, leading to higher outflow of foreign exchange and thus weakening the rupee.

“There is buying from FIIs who are selling out and the credit squeeze is compelling the banks to buy dollar to settle their borrowings they have used to fund Indian corporate,” said Jamal Mecklai, CEO, Mecklai Financial.

These factors will result in higher outflow of foreign exchange than the inflows and hence will put pressure on rupee to weaken. And tough times are here for the regulators to keep control on a weakening rupee.

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