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Sinking rupee catches govt, RBI offguard...

business Updated: May 13, 2012 23:54 IST
Sachin Kumar
Sachin Kumar
Hindustan Times
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It’s been a comeback of sorts, but not the kind corporate honchos, bankers and policy makers would have looked foward to.

The rupee, which touched an all-time low 54.29 to a dollar last December and rebounded to 48-49 levels, has sunk again, foxing the mandarins at North Block. The central bank has been trying to stem the fall for seven months now, but not found enough success.

Starting from a low of Rs 53.3 per dollar in January, the rupee steadily appreciated to end the month at Rs 49.67. It remained fairly stable during February, but in March, it went past the 50-mark and ended at R51.16. Since then, things have worsened till a low of Rs 53.64/$ on May 11.

Experts feel that RBI measures, while timely, will not be sufficient on their own, and the finance ministry should come up with policy actions.

“These measures are helpful, but more would be needed to stem the currency’s weakness,” said Taimur Baig, chief economist, Deutsche Bank. “Fuel price adjustment, for instance, would be particularly helpful in addressing the twin deficit problems.”

India’s current account deficit is a high 4% of GDP — imports are higher than exports, leading to dollar outflows from India.

“The rupee volatility is driven by both fundamental reasons and sentiments,” said Madan Sabnavis, chief economist, Care Ratings.

“Investors were confused about the government's stand on issues such as GAAR, sentiments became weak because of the further deterioration in euro zone crisis,” said Sabnavis.

“Coalition politics are constraining the government's maneuverability, but it is high time for the authorities to take a stand,” said Baig of Deutsche Bank. Future rupee movement will depend on factors such as government’s action on policy front, FII inflows, oil price movement and a euro zone solution.

“If oil remains in the range of $115-125 per barrel, we expect rupee to be in the range of 52-54 by the end of 2012," said Sabnavis.

Some believe it may hit 57. “Short-term base is firmly at Rs 52.80/$ with short term range (up to Sept) at R52-57,” said Moses Harding, head asset liability committee and economic and market research, IndusInd Bank.


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