Rupee swung wildly by 18% in 2012; may remain volatile in 2013

It was a year of wild moves for rupee in 2012, when it hit a life-time low of nearly 58 against the US dollar and fluctuated by over 18 percent , with experts foreseeing continued volatility in 2013.

Last Updated: Dec 30, 2012, 10:21 AM IST

New Delhi: It was a year of wild moves for rupee in 2012, when it hit a life-time low of nearly 58 against the US dollar and fluctuated by over 18 percent , with experts foreseeing continued volatility in 2013.

Even as the government and Reserve Bank stepped up efforts to boost the Indian currency, rupee has emerged as one of the worst performers among major global currencies in 2012.

"The domestic currency moved in a wide range of 49 to near 58 levels, with maximum volatility in the 52-56 zone, mainly as a function of the sustained demand for the dollar and the euro-zone crisis," Dhanlaxmi Bank Executive Vice- President (Treasury) Srinivasa Raghavan said.

The rupee started the year on an uptrend and gained by over seven percent against the US dollar in the first month of 2012 -- appreciating from 53.31 on the first day of January to 49.47 at the end of the month.

The next month saw the rupee rising to as high as 49.02 on February 29 but being unable to sustain the below-50 level for long as it plunged to a low of 57.32 by June-end.

After bouts of gains and losses that saw it moving by over 18 percent between highest and lowest levels of the year, the rupee currently stands at 54.77 against the US dollar -- down 2.73 percent from where it started in 2012.

On the rupee outlook in 2013, market experts are of the view that the Indian currency may continue to remain highly volatile, although it might see some appreciation in the second half of 2013.

"Next year, we are likely to witness the rupee moving in a broad range of 50-57. It will move in the 53-57 zone for a very brief period in January-March. First half of the year is expected to be more volatile than the second half," Dhanlaxmi Bank's Raghavan said.

"Globally, it will depend on two things -- solutions to the euro-zone crisis and US cliff, which are expected by the end of the first six months. On the domestic front, it will depend on measures taken by the government for narrowing the trade gap," he added.

Domestic factors like possible rate cuts by RBI may bring some relief to the markets only in the second quarter of the calender year in April-June, he said.

HDFC Bank's chief dealer Ashtosh Raina said that rupee might be seen strengthening to as much as to 52-levels as "deceleration in economic growth seems to have been bottomed out in 2012".

Going further, it is only likely to improve with expected rate cuts by RBI, and other government measures to cut down the fiscal deficit, he said.

Raina expects the rupee to be range-bound and move in the 52-56 zone during 2013, but says it will also depend on efforts of the governments and policymakers in the US and Europe towards their economies.

Geojit Comtrade's Wholetime Director C P Krishnan said the rupee can see a high of 50-51 against the US dollar by mid- 2013, as global and domestic conditions are likely to improve by then.

While strong inflows from foreign investors helped boost the stock market by over 25 percent in 2012, the same has failed to lift the sentiment in rupee's favour, largely due to a burgeoning current account deficit.

"The pressure of a high current account deficit of 3.9 percent of GDP in the April-June quarter has marred the boost provided by high FII inflows to the rupee. The looming concern of a rating downgrade due to this also hit investor confidence in the local currency," India Forex Advisors' founder and CEO Abhishek Goenka said.

The country's trade deficit, an indicator of more imports than exports, stood at a whopping USD 175.5 billion as on November-end.

Sustained demand for US dollar, mainly from oil importers, and the weakening dollar index -- a basket of six major currencies against the USD -- also kept rupee under pressure.

The Reserve Bank came up with a few stern measures to arrest the fall of the rupee against the dollar. The apex bank was also seen intervening at some points to arrest the local unit's downward spiral.

On June 25, RBI increased FII limit in government bonds to USD 20 billion, while allowing overseas borrowing by India Inc of upto USD 10 billion for refinancing rupee loan.

Also, long-term investors like Sovereign Wealth Funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks were allowed to invest in government debts up to USD 20 billion.