Any rally in rupee will be short-lived
Astabilizing Europe, continued quan- titative easing by the major central banks, correcting commodity prices,
a new-found political resolve to pursue
reforms, falling inflation, large portfolio
flows — the recent conditions have been as
favorable for the Indian rupee as could
have been wished for.
For the past few years, India has been struggling with high inflation coupled with a marked slowdown in growth rates.
JAYANTA DE Y/REU TERS
account surpluses in response to the pronouncements of various Fed governors.
Until India addresses the trade imbal-
ance and shifts its funding mix away from
short-term foreign institutional investor
inflows towards long-term foreign direct
investment, the eventuality would continue
to weigh on the rupee.
By arrangement with Business Standard
‘Expect the rupee to reach a level of Rs 62’
focus on improving the quality of products we manufacture
so that we can compete with other countries, especially
China, he says.
Another area that needs to be a priority is making India
an attractive tourist destination as that would increase foreign exchange and help the currency, says Bhansali.
According to him the main causes for the fall in rupee
imports in the months of April and May
b) Decline in foreign reserves by $4 billion as on May 31,
c) Talk of withdrawal of quantitative easing by US
Federal Reserve as early as September due to better data
coming out of the US
d) A rising US dollar particularly against emerging
market currencies and Asian currencies except yen and
e) Buying of US dollar by RBI in the months of March
and April at the levels of Rs 53.66
f) Borrowings by corporates to take advantage of the
arbitrage between US and India yields thus increasing our
external liabilities, particularly the short-term ones
g) Elevated current account deficit, dependency on for-
eign institutional investment flows, weak rupee, poor
growth impact on fiscal deficit and high retail inflation
h) Withdrawal of foreign institutional investment from
debt funds as they found the levels in India unattractive
and shifted their funds to the US
“Expect the rupee to reach a level of Rs 62 by the end of
the September quarter. In the near term, since the fall has
been sharp, we may see it moving up to Rs 57.05 a dollar
from where it could reach Rs 62,” says Bhansali.