Sunday, 22 April 2012

Rupee may depreciate to 53 levels on macro factors: India Forex

The rupee rose to the 52.20 levels - a new three-month low against the dollar on Friday - its weakest since 10 January 2012. It has depreciated almost 1.5% against the greenback this week too from the last week's closing of the 51.30 levels.

The Reserve Bank of India (RBI) surprised markets last week by cutting its repo rates by 50 bps, as against the market expectation of 25 bps.

The scope for a further interest rate cut had decreased since the governor stated an upside risk of inflation, which made the markets tremble.

The RBI releases data on intervention with a lag of nearly two months and the latest one on Monday showed that the bank had bought $1.1 billion and sold $1.4 billion in the spot market in February. Forex reserves with RBI slipped below $300 billion to $293 billion from 30 December 2011, reducing the central bank's strength to intervene in the forex market.

In spite of the recent RBI intervention, the rupee is consistently depreciating on account of domestic factors, such as current account deficit, inflation, liquidity issues, higher interest rates, a slowing economy, which continue to put pressure on the rupee.

The trade gap has hit a record $185 billion for 2011-12, according to data released on Thursday and the current account deficit is likely to stand at 4% of GDP in the last financial year.

An intervention will not help as we still see heavy import demand. Oil prices continue to stay above $100 a barrel, being a net importer of crude. The rising prices and the huge dollar demand from oil players are keeping the rupee under pressure.

Given the huge shortage of dollars in the forex market, since everyone is diving into it as a safe haven, expect the rupee to face relentless pressure.

The government's inability to lift the economy or introduce any reform to support it makes investors cautious about the growth outlook for the nation.

Overall, the outlook remains negative for the rupee which may hit Rs 53 to the dollar soon. It had touched a record low of 54.30 in mid-December 2011.

"There are no great limits to growth because there are no limits of human intelligence, imagination, and wonder," Ronald Reagan said. Unfortunately, we are seeing a lack of government intelligence to move the economy to sustainable levels.

As mentioned above, macroeconomic factors are weighing on the rupee. The growing dependence on FIIs and FDI are making the long-term growth prospect of the economy very bleak.

Investors could be attracted on the back of some positive reforms and a decent growth prospect, which are seen lacking, to lure them.

The International Monetary Fund (IMF) has pegged growth in India's GDP for 2012 at 6.9%, scaling down the forecast by 0.1 percentage points from its projection in January.

It attributed the moderating growth outlook to policy uncertainty, supply bottlenecks, high interest rates and low external demand. On the external front, spillovers from Europe reflected in the slowing exports and the slowing world economy. This is escalating the poor sentiment in India.

The government, on Friday approved 22 foreign direct investment (FDI) proposals amounting to Rs 586.137 crore ($112.5 million). FIIs invested more than Rs 445 billion in the equity market this year.

In April 2012, we have seen Rs 1,376.20 crore inflows in the debt market and outflows of Rs. 749.40 crore in equity.

Looking at the deficit of $185 billion, we need a minimum $15 billion to meet our requirements. The state of FIIs has been very volatile, making stocks hit 16,000 again and the rupee hit new lows against the dollar possibly.

By Abhishek Goenka, CEO, India Forex India Pvt. Ltd . Source : The Economic Times 

No comments:

Post a Comment