Fund inflows may push Re to 39 mark by December
Unabated overseas fund flows into domestic equities coupled with prevailing high interest rate regime could result in a massive surge in rupee value against the US dollar and the local currency may touch the 39-mark by December.
By PTI |
MUMBAI: Unabated overseas fund flows into domestic equities coupled with prevailing high interest rate regime could result in a massive surge in rupee value against the US dollar and the local currency may touch the 39-mark by December, say experts.
This will hit the exporters hard, whose incomes have shrunk considerably due to a nearly 12 per cent rise in rupee value in recent months.
Heavy fund inflows, which have crossed $17 billion from March till mid 0October, would lead to further appreciation of rupee, they said.
"The rupee will go beyond 39.30 in the next two months as it is under immense pressure due to capital inflows which is expected to cross the USD 25 billion by FY 08," Canara Bank's senior forex dealer Ashish Modi told reporters here.
Another factor that would determine the rupee's movement would be the Reserve Bank's decision on its key policy rates.
With the apex bank widely expected to maintain status- quo on its rates during the mid-term review of its annual monetary policy next week, the higher interest rate regime would also propel rupee appreciation, the experts said.
"Exporters will have to live up with this reality," Modi said, adding the rupee could rise by about 50-60 paise to hover in the range of 39-39.30 a dollar by December.
According to Federation of Indian Export Organisations (FIEO) Eastern Region Chairman P Saraf, surging rupee has slowed down exports by 20 per cent in the current fiscal.
The banking regulator, despite a slew of measures to rein in the inflows and suck out excess liquidity from the system, has been unsuccessful in its attempt to contain rupee rise. The RBI had resorted to the removal of daily reverse-repo cap of Rs 3,000 crore and a 0.5 per cent hike in the cash reserve ratio (CRR) in the previous policy reviews, besides raising the market stabilisation scheme (MSS) ceiling to Rs two lakh crore.
"The exports industry is virtually heading towards a crisis and unemployment. Apart from the currency appreciation, imposition of various taxes like fringe benefit tax and service tax has multiplied the agonies of exporters," Saraf pointed out.
One of the redeeming features presently in the Indian economy, high corporate profitability, too could come under pressure, he noted.
"High crude oil-prices, currently close to $90 per barrel, will also exert pressure on the system and may even affect corporate profitability," the FIEO official said.
The apex bank, which, according to market sources, has been consistently intervening in the forex market over the past three months to contain the rupee rally, has at times, supported the rupee surge in the backdrop of huge inflows.
"The enormous inflows over the past three months have virtually left the banking regulator helpless in capping the rupee's gains. If the supply continues at this level, the rupee will touch 39 by the year-end," Development Credit Bank's Chief Forex Dealer Paresh Nayar said.
Following the increased fund inflows, the country's forex reserves rose by a whopping $5.3 billion to $256.7 billion for the week ended October 19.
This will hit the exporters hard, whose incomes have shrunk considerably due to a nearly 12 per cent rise in rupee value in recent months.
Heavy fund inflows, which have crossed $17 billion from March till mid 0October, would lead to further appreciation of rupee, they said.
"The rupee will go beyond 39.30 in the next two months as it is under immense pressure due to capital inflows which is expected to cross the USD 25 billion by FY 08," Canara Bank's senior forex dealer Ashish Modi told reporters here.
Another factor that would determine the rupee's movement would be the Reserve Bank's decision on its key policy rates.
With the apex bank widely expected to maintain status- quo on its rates during the mid-term review of its annual monetary policy next week, the higher interest rate regime would also propel rupee appreciation, the experts said.
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"Exporters will have to live up with this reality," Modi said, adding the rupee could rise by about 50-60 paise to hover in the range of 39-39.30 a dollar by December.
According to Federation of Indian Export Organisations (FIEO) Eastern Region Chairman P Saraf, surging rupee has slowed down exports by 20 per cent in the current fiscal.
The banking regulator, despite a slew of measures to rein in the inflows and suck out excess liquidity from the system, has been unsuccessful in its attempt to contain rupee rise. The RBI had resorted to the removal of daily reverse-repo cap of Rs 3,000 crore and a 0.5 per cent hike in the cash reserve ratio (CRR) in the previous policy reviews, besides raising the market stabilisation scheme (MSS) ceiling to Rs two lakh crore.
"The exports industry is virtually heading towards a crisis and unemployment. Apart from the currency appreciation, imposition of various taxes like fringe benefit tax and service tax has multiplied the agonies of exporters," Saraf pointed out.
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One of the redeeming features presently in the Indian economy, high corporate profitability, too could come under pressure, he noted.
"High crude oil-prices, currently close to $90 per barrel, will also exert pressure on the system and may even affect corporate profitability," the FIEO official said.
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The apex bank, which, according to market sources, has been consistently intervening in the forex market over the past three months to contain the rupee rally, has at times, supported the rupee surge in the backdrop of huge inflows.
"The enormous inflows over the past three months have virtually left the banking regulator helpless in capping the rupee's gains. If the supply continues at this level, the rupee will touch 39 by the year-end," Development Credit Bank's Chief Forex Dealer Paresh Nayar said.
Following the increased fund inflows, the country's forex reserves rose by a whopping $5.3 billion to $256.7 billion for the week ended October 19.
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