Rating agency CRISIL expects the rupee to appreciate to 50 a dollar by the end of 2012-13.
Factors such as policy actions aimed at growth revival, better outlook on growth and inflation and easing of the current account deficit due to softening of crude oil and commodity prices are expected to improve the environment for the Indian currency, says CRISIL in a report released on Monday. “We assign a two-in-three chance to this event.” The rating agency also expects an improvement in the Euro zone sovereign debt crisis in the January-March 2013 quarter to restart capital flows into Indian markets.
CRISIL expects the exchange rate to settle around current levels of 55-57 by March 2013 in case none of the positive factors play out in favour of the rupee.
The rupee has depreciated about nine per cent since the beginning of the financial year. “Our analysis suggests that the current episode of rupee depreciation is characterised by higher impact of India’s rising vulnerability and relatively lower impact of external shock,” said CRISIL. Last week, the rupee registered a record low of 57.33 against the greenback as a downgrade of top foreign banks had sparked a new wave of risk aversion. However, the rupee regained most of the losses towards the end of the week, when the government clarified on General-Anti Avoidance Rules (GAAR) and assured growth supportive measures will be taken. The rupee appreciated by two per cent to close at 55.64 on Friday. The government had said on Friday that GAAR would not cover investments from tax havens.
According to CRISIL, declining import cover of foreign exchange reserves, high private corporate debt servicing burden and slower growth contributed to vulnerability in the rupee. “The shock element, however, is less severe this time than the one in 2008-09, as a global crisis of the magnitude of Lehman (Brothers) episode has been avoided so far,” said the report.
The financial behemoth had declared bankruptcy in 2008, sending global financial markets into a tizzy.
Also Read
CRISIL said because of high vulnerability, even lower shock resulted in swift depreciation of the currency in the last few months. The Reserve Bank of India (RBI) said in its financial stability report released recently that the import cover declined from 9.6 months in March 2011 to 8.5 months at the end of September 2011.
The Indian currency has lost about 30 per cent against the dollar since August 2011 when it was trading at 44-45 levels. RBI took a slew of measures to contain the volatility, including frequent interventions in the foreign exchange market. The central bank has sold above $20 billion in the spot market since September 2011.