The rupee could fall further if global growth expectations continue to decline and US dollar liquidity pressure intensifies, said a report by HSBC Global Research.

“In an environment of moderating global growth expectations and broad de-risking, current account deficit currencies such as the rupee will struggle,'' the report said.

The report also said regulatory changes or unconventional policies that could inhibit abrupt rupee depreciation pressure cannot be ruled out.

“In light of the currency's steep fall more recently, we would expect some kind of policy response to slow the move,'' the report said.

Rupee to weaken to 58

According to Mr David Bloom, global Head of Foreign Exchange Strategy, HSBC Bank, while nothing has changed in India in the last three months, the rupee is depreciating due to the rapid deterioration in Europe.

“We are nowhere near extreme valuations for the rupee and we think the currency could move to 58,'' he said while speaking to presspersons in Mumbai on Thursday.

The recent measures announced by the Reserve Bank of India such as increasing the ceiling on ECB interest cost and an increase in interest rates on FCNR and NRE deposits, would be partially successful in limiting the rupee's weakness. But, ultimately, the rupee is fighting a global situation and not a domestic situation.

“I think you are going to have a more activist-interventionist central bank on the currency going ahead,'' Mr Bloom said.

Tight RBI stance and fiscal policy required to control inflation

Mr Leif Eskesen, Chief Economist for India and ASEAN, HSBC, said while the growth projection for India is 7.4 per cent for this fiscal, there are downside risks.

While the risks to the outlook are related to the global situation, inflation is more of a concern for growth, particularly over the medium term.

Last year, the fiscal policy was not tightened sufficiently to reign in inflation. In addition, there was a slowdown in the rollout of key structural reforms. That is why inflation is likely to linger, Mr Eskesen said.

So, in the short-term, RBI has to maintain its tight stance for an extended period of time. There has to be more fiscal tightening and the structural reform agenda has to be revived going ahead, he added.

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