The rupee is expected to recover from its current level to 60 against the dollar by the end of fiscal 2013-14, according to Crisil Research.
The strengthening of the rupee by March 2014 would be driven by expectations of current account deficit (CAD) falling to 3.9 per cent of GDP in 2013-14 from 4.8 per cent last year. CAD is expected to correct significantly in the second half of the year due to a decline in non-oil imports, including gold, Crisil said in a report.
Secondly, foreign capital inflows are expected to pick up in the second half of the year when the steps announced by the Government to attract $11 billion in capital inflows (via foreign borrowings by State-owned financial institutions and public sector oil companies and measures to attract non-resident deposits) begin to materialise, the report said.
“Our revised forecast of CAD at 3.9 per cent of GDP in 2013-14 is lower than our previous estimate of 4.2 per cent mainly due to the expectation of a sharper slowdown in non-oil import growth, led by a nearly 28-30 per cent fall in gold imports,” Crisil said.
The rupee had plunged to 65.65 against the dollar on Thursday due to persistent dollar demand and concerns of funding the current account deficit amid heavy capital outflows after the likely pull-back of quantitative easing in the last quarter of 2013.
The Indian currency has fallen close to 20 per cent since May and about 10 per cent in August.
Despite a lower CAD, now estimated around $71-72 billion, the total foreign capital inflows in 2013-14 will be insufficient to cover it. As a result, the rupee will on an average be 12-14 per cent weaker in 2013-14 compared to the previous year.
According to Crisil, a majority of these inflows are expected in the second half on the back of Government measures to boost inflows, which will result in the strengthening of the currency by March-end compared with the current level of around 64-65 for a dollar.