DIRECTION OF RUPEE IN NEXT WEEK: MUMBAI: The Indian rupee is poised to rally despite the foreign exchange reserves falling to a three-year low amid prospects of policy makers hastening to boost reserves and hopes of a halt to fund outflows with the Federal Reserve indicating that it will keep the liquidity tap open for some more time. The rupee, the most battered currency in Asia, could get a breather this week, giving the government some time to put its act together to prevent a further slide. If the rupee continues to slide, it could revive inflation and throw fiscal deficit calculations to wind. Traders expect the rupee to be in the 58.50-60 per dollar range in the near term as debt portfolio outflows, which have been the main cause of the slide, taper. The government, RBI and SEBI have taken quite a few measures to prevent the currency slide, and those measures will have some impact on the rupee, said Melwyn Rego, executive director, IDBI Bank, More than direct intervention, RBIs announcement of measures to eliminate speculation has had a greater impact on the rupee. On the external front, Ben Bernanke retracting from his earlier statement and a softening in his tone are already reflected in the dollar weakness in the last few days. Foreign exchange reserves fell to a three-year low of $280.176 billion in the week ended July 5 as RBI sold the greenback to defend the rupees slide, though it officially maintains that it does not target a level for the currency. But the erosion of reserves raises doubts whether the country has the strength to avoid a currency crisis since more than $172 billion of debt is set to come for repayment in the next 12 months. This has led to the government meeting bankers last week to work out a plan that could save the currency from sliding further. RBI, for its part, banned proprietary trading by banks in currency derivatives. It has informally issued a gag order on currency forecasts for media by traders or economists. They (have given) us a lot of suggestions, including a sovereign bond issue, Chief Economic Advisor Raghuram Rajan told reporters after a meeting with foreign bankers on Friday. All options are on the table and we will examine as and when the need comes.
Posted on: Wed, 06 Nov 2013 10:06:13 +0000
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