Will Indian rupee sink to 60 in 2013?

Zee Research Group / Delhi

Rupee is trading near eight-and-a-half month low and has depreciated by nearly 4 percent for a month now. But, the moot question is: will rupee bounce back? No! Say experts who suggest that the worst is yet to come and rupee may even ebb to 60 by the end of the year. The global cues are playing a big role in the rupee movements. The major reasons include: dollar appreciation backed with the improving outlook for US economy, pumping in a lot of liquidity by Bank of Japan (BOJ), interlinked global markets, and weak domestic macros. The rupee is getting weaker because of global markets. Pramit Brahmbhatt, CEO, Alpari Financial Services, asserts, “The dollar is appreciating against all the major currencies like Yen, Euro. Dollar rally is based on the positive sentiment that US economy is reviving and it is expected to do better in 2013.” In sync with the view, Anis Shaikh, an independent analyst who closely tracks the rupee movement avers, “The deteriorating trade deficit figure (17.8 billion dollars) for the month of April has triggered the move. Indian rupee is not alone getting depreciated but similar trend can be seen across the Asian currencies.” DK Pant, chief economist at India Ratings points that even capital flows hasn’t stopped rupee depreciation. “Capital flows are not the problem this time as they are good. The main reason behind the decline is the immense strength of the dollar Index,” he opines. Commenting on the outlook of rupee movement, Brahmbhatt at Alpari Financial Services says, “There is a huge probability that all time low levels of 57.3 might be breached (all time low was touched in June 2012). The way US economy is expected to recover there is even a possibility that rupee may touch levels of 60 by the end of 2013.” Reiterating the view, Shaikh says, “Currently, the level of 54.5 is supposed to act as a base for rupee. All time lows of 57.32 may be surpassed in next quarter. Furthermore, it is likely that by the end of 2013 we can witness levels of 60. The dollar is expected to strengthen more as Federal Reserve will taper asset purchases and that move should come by September.” However, Pant at India Ratings has a different perspective and argues, “As on today, probability of rupee to touch an all time low in the short term is low.” Referring to the possibility where RBI may intervene in the forex market, Brahmbhatt at Alpari Financial Services says, “India is a net commodity importer hence the weaker rupee will widen the current account deficit (CAD) and RBI won’t like that situation and therefore it will intervene to avoid it.” Brahmbhatt’s thought got an endorsement from Pant at Fitch who affirms, “Rupee depreciation will certainly widen CAD. Seeing CAD from trade flows side, export growth has been pretty low in FY13 and if industrial growth recovers then it would have negative impact as we import lot of raw materials. However, the only savior is the low commodity prices. For instance if rupee depreciates by two percent and commodity prices fell by less than two percent then it would have an adverse impact on CAD. However, if rupee depreciates too much and affects the macro-economic stability of the economy then RBI will definitely intervene.”