Mumbai: Weakness in the rupee is likely to persist in the short-term as measures taken up by the RBI to arrest its decline have shown a subdued and short-lived impact, brokerage Angel Broking has said.
"From the short-term perspective, weakness in the rupee is expected to persist, as the currency has shown a subdued and short-lived reaction to the RBI's interventions by way of open market operations (OMOs) or by way of asking exporters to convert half of their forex earnings into rupees," Angel Broking Chairman and Managing Director Dinesh Thakkar said in a report Wednesday.
According to the report, the Indian unit is likely to depreciate in the next two-three months and may test levels of 57-57.50 against the US dollar.
Stressing on the need for structural reforms, the report said it is necessary to arrest the fall of the currency. "In the current scenario, structural reforms by the Government are very necessary so as to control further weakening of the rupee."
It said factors like falling investment inflows, coupled with widening trade and fiscal deficit, are putting pressure on the domestic currency. "Apart from falling investment inflows, it is the widening trade and fiscal deficit that put a downward pressure on the rupee."
While the current account deficit had touched 4 percent of the GDP as of December 2011, the fiscal deficit stood at 5.76 percent for the last financial year.
The broking house pointed out that a weakening rupee would increase the import cost of the domestic economy.
"The rupee has weakened considerably and led to a rise in value of oil imports. In the current context, oil prices in international markets have corrected considerably, but the value of oil imports will not deteriorate due to rupee weakness and the Indian economy would struggle with the burden," the report said.
First Published: Wednesday, June 6, 2012, 22:12