Indian rupee to stabilize at current levels as speculation has died down – Assocham

With bulk of the speculative activity around rupee value in the foreign exchange market ebbing away, the dollar value is not likely to go beyond 62-63 even after RBI withdraws the temporary measures like direct sale of dollar to the oil importing companies and FCNR swap facility, an ASSOCHAM paper on Rupee Rate has said.

Besides, the discourse among the global investors has decisively turned again from ‘Sell India’ in August-(early) September to ‘Buy India’ as is evident from a feverish pitch with which the foreign institutional investors (FIIs) are buying into the Indian market.

On the other hand, exports have made an impressive rebound – a trend which is very much expected to continue with Indian exporters becoming more competitive with currency appreciating from Rs 55/56 to a dollar to Rs 61-62 to a dollar. However, the speculation- led rally to Rs 68.85 to a dollar, as witnessed in August would not have been sustainable.

According to the ASSOCHAM, worries on account of Current Account Deficit (CAD) have also gone away largely with the global market movers and shakers getting convinced that the CAD in India would drastically come down. Finance Minister Mr P Chidambaram has already said the CAD for the current fiscal would not be more than USD 60 billion.

All these positives now set a stage for the RBI for a possible withdrawal of the measures which were taken to quell the storm which had swept the Indian markets when the rupee was witnessing almost free fall while the FIIs were pulling out of the emerging markets following chaos triggered by the May 22 statement from the US Federal Reserve which indicated withdrawal of USD 85 billion a month stimulus to the American economy. Part of the quantitative easing resulted in a rally in the emerging markets, which got punctured after the Fed statement.

Foreign Currency Non-Resident Account (FCNR) deposit Swap facility which has already raked in more than USD 13 billion to the country’s forex kitty is likely to bring in USD 20 billion directly to the sovereign treasury when the facility ends by November 30. Besides, the central bank may end the direct dollar access to the oil importing companies even earlier. It is only then, that the real strength of rupee will be decided by free market forces, “but we are sure that these market forces are now poised in favour of the Indian currency than the US Greenback,” the paper pointed out.

ASSOCHAM President Mr Rana Kapoor, who himself is a well-respected banker said, the central bank along with a decisive support from the Finance Ministry, has fought the crisis around rupee very well with the result that the confidence of global investors has been restored. “We must further build on it and as Dr Raghuram Rajan has exuded confidence, we should be well prepared when the US Federal Reserve actually ends the easy money policy”.

The oil companies’ dollar requirement is quite large and makes a big difference in the market. In the fiscal 2012-13, India imported crude oil worth USD 144 billion and this fiscal, these imports may well reach USD 160 billion- about USD 13/14 billion a month. The direct access from RBI for these funds eliminates the speculative part in the forex market, which could be bad as and when it is on a boil, added Mr. Kapoor.

Stability of the rupee, has also brought in considerable relief to the government which in any case is battling inflation. Depreciation of rupee would have a disastrous impact on inflation, since India is a net importer country, mentioned ASSOCHAM Chief.