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India rupee slump almost over says poll

Mumbai, May 15, 2012

The Indian rupee will hover near record lows against the dollar for the next month or so, but a further significant fall is unlikely following a near 10 percent slide in the currency since February, a Reuters poll shows.

Indeed, the currency is expected to appreciate gradually after June to around 50 per dollar by March 2013, the poll of more than 20 respondents shows.

It was trading at 53.70 per dollar on Tuesday after hitting a record closing low on Monday of 53.96/97 and a record low in December of 54.30.

The median forecasts in the poll show that the rupee  is expected to be trading around 53.41 at the end of June, 52.61 at the end of September, 51.50 at the end of December and 50.00 at the end of March 2013.

"To see a more meaningful and sustained downtrend emerge in dollar/rupee, either credible fiscal and balance of payments policies need to emerge in India," said Paul Mackel, head of Asia FX strategy at HSBC in Hong Kong. Or, the dollar needs to turn lower broadly, although that is unlikely because investors are currently risk averse, which supports the dollar, he said.

The rupee has fallen nearly 10 percent since its 2012 peak in February due to concerns about India's current account and fiscal deficits. A poorly received federal budget for fiscal 2013 unveiled in mid-March has further eroded confidence by casting doubt on the government's willingness to implement policy reforms ahead of general elections due by 2014.

The rupee was further undermined by controversial government proposals for taxes on foreign investment.

Low confidence in the economy was reflected in the Reuters poll. It showed 15 out of 17 respondents predicting the country's current account deficit will be greater than 3 percent of GDP in the fiscal year to the end of March 2013. Still, nine out of 16 respondents predict India will avoid a balance of payments deficit, suggesting capital flows will plug the gap.

The poll showed that respondents expect a pro-active central bank in stemming the fall in the rupee. The Reserve Bank of India has intervened in recent months and adopted unconventional steps to try to control the currency, such as asking exporters to convert half of their foreign exchange holdings into the rupee.

However, respondents were split on how effective the RBI measures will prove to be if the rupee was to keep falling. Of 15 respondents, seven -- all Indian-based -- said the RBI's present set of measures will be effective to stem the fall in the rupee. Four, all in India, were neutral, while four, all overseas analysts, said the measures would prove ineffective.

"The RBI measures to date have had only limited effect. Despite numerous measures, including intervention, the dollar/rupee is still heading higher," said Khoon Goh, a senior FX strategist at ANZ in Singapore. "Weak fundamentals and a strong dollar point to further dollar/rupee upside."     

A further fall in oil prices could help support the rupee by relieving pressure on the current account deficit, given oil comprises about two-thirds of the country's import bill. Brent crude has fallen to near four-month lows of around $111 a barrel. - Reuters




Tags: rupee | India | Currency | Dollar |

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