There is a two in three probability of the rupee appreciating to 50 against the dollar by the end of current fiscal, according to the research arm of rating agency, Crisil.
However, this assumption is subject to initiation of policy reforms, growth rates and inflation not worsening, softening of current account deficit and improvement in the Euro Zone situation.
Crisil Research said in a report that current account deficit should ease to 3.6 per cent of GDP in 2012-13 from 4.2 per cent in 2011-12, because of softening in global crude oil prices and decline in gold import.
The forecast also assumes that the research firm’s projection of 6.5 per cent growth and 7 per cent inflation will not worsen further. Further, the research firm said, “Some improvement in the Euro Zone situation towards the first quarter of 2013 is assumed. These factors should improve investor sentiments and stimulate the return of capital inflows.”
MORE VULNERABLE NOW
Macroeconomic indicators have worsened now and added to the vulnerability of the local unit, the report indicated. Trade deficit — difference between exports and imports — widened to 10.3 per cent in 2011-12 against 9.8 per cent during the Lehman crisis. Current account deficit widened to 4.2 per cent in 2011-12 against 2.3 per cent during the 2008 crisis.
The report mentions that the shock factor is low now compared to the 2008 crisis.
“During 2008-09, a sudden collapse in global financial markets resulted in net capital outflow by foreign institutional investments of about $14 billion, whereas in 2011-12 and 2012-13 till date, the impact of shock (in terms of foreign capital outflows) has been small,” the report said.
Crisil Research mentioned in its report that the local unit is more vulnerable now than it was in 2008. In 2008, the rupee had nosedived to 52.10 against the dollar in March 2009 from 39.9 in April 2008.
The research firm also said that the rupee will stick to its 55-57 levels if there are no policy reforms, growth worsens, inflation rises and euro-zone crisis worsens.