Lower current account deficit along with regulatory measures would help strengthen the rupee and stabilise it at 59-61 per US dollar by FY14 despite intermediate fluctuations.
According to India Ratings & Research, “The third consecutive month of double-digit y-o-y growth in exports in September 2013 augurs well for current account deficit. Such growth in exports was last witnessed during August-October 2011.
The rupee had sharply declined to its historic low of 68.80 on August 28 on investors losing confidence in the markets and fear of US tapering its fiscal stimulus.
However, measures by the Reserve Bank of India to tighten liquidity in the banking system helped the Indian currency recover to 62 levels in a month’s time.
The rupee closed at 61.88 against the dollar on Wednesday.
India Ratings believes that CAD will fall sharply in Q2FY14 and may be around 1 per cent of GDP. This is because trade balance at $28.7 billion in Q2FY14 was significantly lower than the Q1FY14 trade deficit of $50.4 billion.
The trade balance in September 2013 at $6.8 billion has been the lowest in the last 30 months. A decline in gold and silver import helped reduce trade balance to $80.12 billion in the first half of FY14 from $91.82 billion in the first half of FY13, the report said.
These numbers will help reduce import bill and bring back investor confidence thereby supporting the rupee.