Rupee
weak, but not to worry
Wednesday, October 12, 2005
DAILY NEWS & ANALYSIS
Seetha
NEW DELHI: There’s no cause for panic over the
weakening rupee — which closed at 44.88 to the
dollar — and there’s certainly no need for
the Reserve Bank of India (RBI) to intervene, say
experts.
Most rupee watchers agree that an appreciation of
the currency is inevitable in the long-term, though
it might decline further in the short-term.
“The movement is in line with fundamentals,
it doesn’t call for any action,” says Sanjeet
Singh, head, fixed-income research of ICICI Securities.
“The RBI should keep as far away as possible.
The weakening will push up exports and benefit the
economy,” asserts D H Pai Panandiker, advisor,
RPG Foundation.
The rupee hit a new 11-month low in intra-day trade
to touch 44.98, pulled down by heavy dollar demand
from importers and foreign portfolio outflows. The
country’s imports grew 32% in August, thanks
to a surge in oil and non-oil imports. As a result,
the trade deficit (excess of imports over exports)
in April-August 2005 soared 80% over the same period
last year to touch $17.4 billion. “The surpluses
on the invisibles are not enough to cover the deficit
on the goods account,” points out Panandiker.
Non-resident Indian deposits have also turned negative
because of higher global interest rates, he explains.
Not many analysts are surprised by the decline in
the rupee. “This has been in line with expectations,”
says Singh. Both Singh and Panandiker feel the rupee
may decline further in the short-term, though perhaps
not as steeply as over the past few days.
ICICI Securities had earlier said the rupee may touch
45 per dollar by the end of 2005 and range between
45 and 50 by March-end. “With the recent steep
decline bringing it closer to the calendar year target,
the revised target could be in excess of 45,”
Singh says.
Panandiker, however, feels the rupee will fluctuate
around the 45-mark, adding that touching the 46-47
mark should be alright.
However, American Express appears to be placing its
bets on a stronger rupee.
According to senior economist Kevin Grice, the rupee
may appreciate to Rs 41-42/$ in the next 12 months,
buoyed by falling oil prices, higher local interest
rates, a weakening dollar and appreciation of the
yuan.
