Rupee to remain in 51.25-52.00 range against dollar

Vikash Bairoliya
Analyst, Nirmal Bang Securities

Weakness in the rupee persisted for most of the fortnight gone by, hit by the deteriorating domestic and global economic fundamentals. While economic numbers like the index for industrial production (IIP) and current account continued to turn weaker, withering capital inflows too added to the pressure on the rupee.

Strong dollar bidding by oil importers was also evident in the foreign exchange market. Furthermore, re-emergence of the Spanish debt worries and a subdued reading of China’s GDP triggered risk-off trades, hitting almost all Asian and other highyielding currencies.

The underlying theme for the rupee weakness is likely to persist in the short-term as inflows remain cloudy on tax issues. However, the weakness could get capped at around 52 as a number of factors can lend support to the rupee. First, in spite of the sticky inflation, the Reserve Bank of India could just reduce the policy rates by 25 basis points, signaling its shift of focus to growth, which can bring about a sentimental change in the overall economic environment. In addition, Reserve Bank of India’s intervention can’t be ruled out at these levels. On the global front, the European Central Bank looks very close to revive its Securities Markets Programme (SMP) wherein it can start buying Spanish and Italian debt to contain the borrowing costs of these economies.

So, as long as the euro holds the bearish on the domestic currency in the very short-term.

$1.30-mark, the rupee may not fall below 52. However, we remain