Rupee likely to appreciate to 52-53 level by Mar ’13

Lot depends on progress in reforms, easing of trade deficit

The rupee may appreciate and trade at 52-53 levels by March 2013 against the dollar if the government pushes the key reforms it had announced earlier and bring down the trade deficit, say experts. The other deciding factors that would help strengthen the rupee in the coming months are US fiscal cliff (a combination of expiring tax cuts and across-the-board government spending cuts scheduled to become effective from 2013), policy announcements next month and in the first quarter of 2013 by the Reserve Bank of India(RBI), budget announcement and a fall in commodity prices.

Anil Bhansali, vice-president (risk advisory), Mecklai Financial Services, said, “The government’s indecisiveness in reforms, such as FDI in retail, insurance and pensions, is significantly contributing to rupee depreciation. Oil and defence companies are continuously buying dollars to meet month-end import commitments. Also, as the rupee is falling, companies are now covering the unhedged loans taken earlier.”

“Once you see FDI in retail and other reforms materialising, the rupee will strengthen to 52-53 levels by March 2013 subject to the fact that there is no global uncertainty in January and March, US Fiscal cliff happens in December and RBI cuts rates in December or in the first quarter of next year,” added Bhansali.

Bhansali said the main reason for the volatility is that when the rupee was appreciating and was at 51.35-51.45 levels in September, importers assumed that the rupee would stay at the current levels, bought at that level and did not hedge.

“The main reason for the volatility is that if the rupee crosses a level, people (importers) panic and buy. Also RBI steps in, but it is only for a small period,” added Bhansali.

Jamal Mecklai, chief executive officer at Mecklai Financial Services, said, “The rupee is slowly and continuously sliding as the current account deficit is widening, but I don’t think it will weaken beyond 57.”

NS Venkatesh, treasury head, IDBI Bank, said, “The rupee will continue to remain under pressure in the near term because the trade deficit is widening. But going ahead, US fiscal cliff, government’s actions on the announced reforms, proactive budget to help industry, will bring positiveness in the system, which would bring more capital flows from not only FII but also FDI.”

“Outside India, growth is not happening in the euro zone and the US, UK, Japan is not doing well and China is in a soft landing, so, commodity prices are likely to fall. Therefore, pressure on trade deficit will fall and dollar will show weakening. The rupee will trade to 51-52 levels by March. In near term, say in one week, the rupee will be in 55.20-55.80 levels,” added Venkatesh of IDBI Bank.

Anwarul Hoda, former member planning commission and at present professor at Indian Council for Research on International economic relations (ICRIER), said, “When India was growing between 2004-05 and 2009, the rupee was at less than 40 to the dollar, so why can’t it happen again if we are able to control inflation and RBI cuts rates to bring more investments (domestic and foreign). If we can get back to the normal path of growth at 8-9 per cent, we could see rupee appreciate.”

“The exchange rates are influenced by inflation, current account deficit. In India, the inflation is much more than that in the United States. Inflation is also caused by fiscal deficit, which the government has targeted to be 5.3 per cent, but most probably this target will not be achieved and it would reach 5.7 per cent due to high subsidies,” added Hoda.

On Tuesday (November 27), the rupee closed stronger at 55.45 levels to the US dollar after opening at 55.55 levels. The USD-INR pair made the intra-day high of 55.77 levels and low of 55.43 levels. The 30-pack Sensex had posted its biggest daily gain in more than two months as investor sentiment turned positive on growing hopes that the government would push through reforms to stimulate growth and avoid a ratings downgrade. Global rating agency Moody’s announced that the outlook on its Baa3 rating for India is stable, citing the country’s large, diverse economy and strong gross domestic product growth as supportive of the rating. The Sensex was up 1.65 per cent or 305.07 points, at 18,842.08, its highest close since November 8, and is just 295 points away from year high.The Nifty gained 1.62 per cent, or 91.55 points, to 5,727.45. Both the indices posted their biggest gains since September 21.

The stock market and the currency markets were closed on Wednesday on account of Guru Nanak Jayanti.

“The rupee could remain under pressure in the near-term due to a widening fiscal gap, with hopes diminishing for dollar inflows as the Parliament remains in a deadlock over reforms. The GPD data for the second quarter is due on November 30. With no improvement in overall economy, we expect the figures to disappoint the market again,” said Abhishek Goenka, founder and chief executive officer of India Forex Advisors.

“The rupee was seen moving out of the way from the international markets. It was seen trading parallels with the Dollar Index. When it slipped to 80.10 levels, rupee was seen touching 55.77 levels, while Dollar Index recovering to 80.30 levels was followed by recovery in rupee. A correction could be seen as said earlier. The event to focus will be the second quarter GDP figures due on Friday. We expect the figures on lower side that will further add volatility in the local market,” added Goenka.


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