The recent measures by the Reserve Bank of India and the Government to contain the current account deficit can at best provide temporary relief to the rupee.
A significant and sustained reversal in rupee can only materialise when there is an improvement in India’s growth story, say economists.
These remarks came on a day the rupee touched a historic low of Rs 62.01 to the dollar, amid concerns that the RBI’s recent steps to steady the currency would compel foreign investors to rethink their investment plans.
Also, speculation that the US will pare the stimulus next month put further pressure on the rupee.
The rupee may continue to depreciate further until one sees a significant and consistent improvement in the trade deficit position, said Anis Chakravarty, Senior Director, Deloitte in India.
The overall pick-up in exports of goods and services in coming months coinciding with the recovery in advanced economies, such as the US and Europe, should ease the pressure on the external sector to some extent and will certainly play a crucial role in the rupee’s recovery, he added.
This will be a medium/long-term respite than an immediate solution, he noted.
Indranil Sen Gupta, India economist, BofA Merrill Lynch, sees the forex measures announced so far fetching $15 billion. When adjusted for $5 billion of RBI forex intervention and $4.9 billion for forex forward book, these measures will add only about $5 billion to forex reserves, Gupta said, in a research note released soon after the RBI announced its latest set of what is being interpreted as capital control measures.
This will certainly not be enough, but it provides the RBI a fighting chance to hold Rs 58-62/$ for now, the research note added.
Else, there are already expectations that the rupee may touch 65/$.
The RBI will eventually have to issue an NRI bond (that can raise $20 billion) or a sovereign bond ($5 billion a year), according to BofA Merrill Lynch.
The 2013-14 GDP growth will slip to 4.8 per cent if the July measures continue into the busy October-March industrial season, the report added.
Anubhuti Sahay, Senior Economist, Standard Chartered Bank, said the recent measures by the Government and the RBI to contain CAD and attract more dollars should have a positive impact on the rupee.
However, the market’s views on quantitative easing (QE) tapering can act as a swing factor. Thus, the upcoming data from the US economy and the September 17-18 Federal Open Markets Committee decision will be closely watched, she added.
“It is important to emphasise that these measures can provide a temporary relief to the rupee. Any significant and sustained reversal in the rupee is difficult without an improvement in India’s growth story.”