| First Published: Tue, Apr 23 2013. 12 53 AM IST
Mumbai: Falling gold prices, improvement in global liquidity, reducing trade deficit and a likely improvement in India's fiscal and current accounts have made economists more optimistic about the rupee this fiscal. Most economists are predicting that the worst is over for the Indian currency. None of them is forecasting a rise in the value of the rupee, but the apprehensions that the rupee might weaken towards 60 per dollar have been junked. Falling gold and oil prices are the main reasons behind the new-found optimism. In a note released on Thursday, Indranil Sen Gupta, India economist at Bank of America Merrill Lynch, said a $100 per ounce (28.35g) fall in gold prices will reduce the current account deficit (CAD) by about $3 billion. India's CAD widened to a record 6.7% of gross domestic product (GDP) in the quarter ended December. "If gold settles at current levels, our 2013-14 current account deficit forecast will come off 40 basis points (bps) to 3.9% of GDP from 4.3% of GDP," Sen Gupta wrote in the note. One bps is 0.01%. "On balance, the reduction in pressures on the balance of payments should support our call that the RBI (Reserve Bank of India) will hold Rs.52-56 per dollar if the dollar continues to rule at 1.30 to 1.20 per euro," Sen Gupta said. India's net oil imports of $81 billion were the largest contributor to CAD in April-December, followed by $24 billion of net gold, and gems and jewellery imports. Saugata Bhattacharya, chief economist at Axis Bank Ltd, said besides the external environment policy initiatives by the government, including clarity in gas and coal pricing and reviving stalled projects, will also help the rupee. "The currency is the signal for foreign investors and certainly the doom and gloom of the last few months has vanished. Lower commodity prices and improved global liquidity means that even if the rupee weakens, it is unlikely it will go below 56 per dollar," Bhattacharya said. International gold price has fallen from a peak of $1,900 per ounce in September to $1,434 per ounce, while Brent crude is off its recent peak of $116 per barrel in February to $100 per barrel. A recent Nomura Holdings Inc. report said it expects the rupee to be an "outperformer" among emerging market countries if low commodity prices are sustained and global growth improves in the second half of 2013. "This change in performance would be driven primarily by a likely pick-up in foreign equity inflows, stronger growth in the domestic economy and healthier current account positions. The rupee could also gain from investor perceptions that a softer inflation backdrop would allow the RBI, which next meets on 3 May, to continue its rate cut cycle, while the fall in commodity prices (including gold) will see a more sustained narrowing of the current account deficit (and lower inflation)," Nomura said. It has not indicated any level for the local currency. The improvement in India's trade position has also brightened the prospects for the rupee. Trade deficit in March shrank to $10.3 billion from $14.6 billion in February and half of the $20 billion reported in January mainly because of a 7% rise in exports and a drop in import growth. In a note on Monday, HDFC Bank Ltd said that the rupee has gained despite weakness in foreign inflows mainly because of the better trade numbers. "The prospect of a lower-than-expected current account gap...is likely to be a vital support for the rupee. This, along with the possibility of a pick-up in debt-related inflows...as well as some improvement in equity-related inflows, backed by the possibility of a deeper domestic monetary easing cycle could mean that some appreciation is in store in the near-term," HDFC Bank said. HDFC Bank expects RBI to curtail rupee appreciation by buying dollars to replenish its forex reserves if the rupee strengthens too quickly. It foresees a range of Rs.53.50-54.50 per dollar in the near term. Both HDFC Bank and Credit Suisse Securities (India) Pvt. Ltd said besides equity flows, the rupee may also be strengthened by the opening up of the local debt market to foreign investors. "The 36-country REER (real effective exchange rate) for rupee is close to two-decade lows. Medium-term risks of over-reliance on foreign debt aside, a 'crisis' is certainly not imminent. Potential rupee stability/appreciation can help drive down wholesale inflation and help rate cuts," Credit Suisse said. On Monday, the rupee ended at Rs.54.14 per dollar, down 0.32% from Thursday's close of Rs.53.97 per dollar. The currency market was closed on Friday. Since its recent high of 53.13 to a dollar in the first week of February, the local currency has weakened, but it is trading at a much higher level than 57.15, its lowest level, recorded in June 2012. First Published: Tue, Apr 23 2013. 12 53 AM IST  via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNEF7YmZXWX-LZrLjY8iayG99cQLxQ&url=http://www.livemint.com/Money/98H5TYSAkKd7YjcLOtluhP/Rupee-unlikely-to-depreciate-sharply.html | |||
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