You are here:HomeEconomy

Is the rupee heading for 75/dollar?

close

Deutsche Bank had last week forecast that the rupee could crash to 70 against the U.S. dollar in a month. At that time the rupee was trading at 64 levels and the forecast was taken with a pinch of salt.

But after just one week since the report was put out, the 70 mark for the rupee looks ominously closer. The rupee hit a record low of 68.75 on Wednesday and more clouds gathering over the rupee.

Indian stock markets are continuing to slide as foreign investors are pulling out of India assets, oil prices are shooting up over the Syrian crisis and concerns are mounting over India's current account and fiscal deficit.

The Indian rupee and stock markets have been the worst performers among major Asian nations this year. Foreign institutional investors have pulled out close to $9 billion from the Indian debt markets and $3 billion from the equity markets since June.

Credit Agricole in a report said it does not see value in the rupee below 70 to a dollar unless foreign capital returns and that it would not recommend buying the currency for fundamental reasons below 75 to the dollar. "The only long-term solution - deep economic, political and social reforms - is unlikely ahead of the upcoming elections and possibly for years to come," Credit Agricole said in a note dated August 21.

Sajjid Chinoy, India Economist at JP Morgan, said rupee weakness is driving more rupee weakness and the government and the RBI should together try to stabilise the currency. "The self-fulfilling panic needs to broken by policy measures," he said. But neither the government nor the RBI has come out with big-bang policy measures to break the downward cycle in the rupee.

"There are lots of expectations on the fiscal side that something might happen and markets are waiting for some announcements. It's been pretty nice talk so far, but no implementation," said Jayesh Mehta of Bank of America Merrill Lynch.

Adding to the rupee's woes, global oil prices have already shot up to six-month-high levels as the momentum builds up for a Western military strike on Syria. A spike in oil prices would widen India's current account deficit, putting more pressure on the rupee.

Every dollar increase in crude oil prices adds about Rs 4,000 crore to the loss for PSU oil companies that sell diesel, kerosene and LPG at a lower price than its actual cost. At a time when the Food Bill would put additional burden the government's finances, the government could ill afford to widen the oil subsidy substantially. Any slippage of the fiscal deficit front would not be viewed favourably by the ratings agencies. And a sovereign downgrade would be the last thing the government and the rupee needs.

Story first published on: August 28, 2013 10:38 (IST)

Tags: Rupee, Dollar, Forex

MORE FROM NDTV

FROM THE WEB

MORE FROM THE WEB
MORE FROM NDTV

For Profit Update,
Follow NDTV on Pinterest

Social Sharing

Advertisement

Advertisement

Portfolio
 

More From NDTV

More From the WEB

Don't Miss

Advertisement

Market Data provided by © Accord Fintech.
© Copyright NDTV Convergence Limited 2014. All rights reserved.