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Rupee likely to rise further

India’s domestic currency can appreciate further in the wake of large inflow of foreign funds into emerging markets including India, reports Gaurav Choudhury.

business Updated: Jan 22, 2008 22:14 IST
Gaurav Choudhury

India’s domestic currency could appreciate further in the wake of large inflow of foreign funds into emerging markets including India in the wake of US Federal Bank’s benchmark 0.75 percentage point rate cut, economists said on Tuesday.

“The most immediate concern arising out of a Fed rate cut would be that of sharply appreciating rupee. This would affect merchandise exports and invisible income could see a fall,” said T.K.Bhaumik, chief economist, Reliance Industries Limited.

The rupee has appreciated by about 12 per cent in 2007 forcing the government to offer fiscal sops to affected sectors such as handicrafts and textiles. The rupee’s appreciation against the dollar is due to the fact that almost 70 per cent of India’s external trade is invoiced in dollars and any change in the dollar’s rupee has a major impact. The rupee closed at Rs 39.50 to a dollar on Tuesday.

A senior official, who did not wish to be identified, said that “it is imperative that further short-term measures are provided immediately. The industry and export associations have been reporting considerable loss in employment, especially in sectors such as textiles and handicrafts.”

Trade analysts said small and medium exporters are feeling the pinch largely because they are unable to hedge currency fluctuations losses due to smaller volumes.