Fed move, RBI policy to decide rupee path
Sep 08 2013 , Mumbai
If tapering starts in US, it will pull back dollars
The most important factors will be the outcome of the meeting of Federal open market committee (FOMC) of the US on September 17-18, RBI’s mid-quarter review on September 20, and the latest current account deficit figure.
It is widely expected that the FOMC will give a more definite timeframe for quantitative easing. When this begins to happen, it will probably lead to a pullback of dollars from the Indian equity market.
Standard Chartered in a report said, “The approaching FOMC meeting and ongoing geopolitical concerns support an environment of broad dollar strength and could mean that the pullback in dollars is temporary. We maintain a short-term neutral rating on the rupee. We are more constructive on the rupee in Q4, when we expect a combination of an improving current account and weaker dollar.”
The number of Americans filing new claims for jobless benefits fell last week to a near five-year low, a sign of economic health that could help convince the Federal Reserve to wind down the bond-buying stimulus programme. Initial claims for state unemployment benefits slipped by 9,000 to a seasonally adjusted 323,000, according to the US labour department. Back home, a wide current account deficit and its financing are the major concerns and factors putting pressure on the rupee.
RBI’s money policy under the new governor, Raghuram Rajan, will also be watched keenly. Immediately after taking over the reins of the central bank, Rajan deferred the policy review by three days from the previously-scheduled date — which was incidentally the day of the FOMC meeting — in an apparent bid to give himself enough time to watch the Fed move and calibrate the money policy accordingly.
This, coupled with his stress on the need to push growth, has generated a lot of interest over the mid-quarter review. If RBI manages to send out a strong signal once again, it can draw investors to both the equity and debt markets.
Therefore, the outcome of the FOMC meeting and the RBI’s response to it in its mid-quarter review are going to determine the rupee movement in the near term.
Abhishek Goenka, India Forex Advisors chief executive offier, said in a report, “During the last three sessions, the rupee has managed to register gains, helped by positive measures unveiled by the new RBI governor. Although globally the US dollar index is at its six-week high and the euro is below $1.3150, the rupee is seen holding on to its gains.”
He further said, “One important step for the rupee was taken at the G20 summit where India and Japan extended their existing currency swap facility. The existing swap facility of $15 billion with Japan, which was agreed upon last year, has been enhanced to $50 billion. This will enable our country to defend the exchange rate.”