 "Rupee seen weakening as inflation continues to stay high")
The rupee is seen weakening as inflation continues to be sticky and the euphoria in the currency market due to the victory of the Bharatiya Janata Party (BJP) led National Democratic Alliance (NDA) is dying out. According to most experts the Reserve Bank of India (RBI) may not allow the rupee to appreciate as this shall hurt the exporters.
Wednesday the rupee ended marginally strong at Rs 59.33 compared with previous close of Rs 59.34 per dollar. The rupee has appreciated nearly 1% since the start of this fiscal. The major appreciation had happened in May. The NDA's victory in general elections had resulted in the rupee ending at Rs 58.46 on May 22, its highest closing level in this fiscal so far.
"The rupee may not touch Rs 55 soon. As long as inflation remains on the higher side there will not be any scope for the currency to appreciate. Fundamental do not warrant rupee appreciation. The inflation differential between India and its trading partners have not narrowed down. RBI may not allow rupee appreciation because if allowed it will negatively impact the growth of labour intensive export oriented industries," said Rupa Rege Nitsure, chief economist, Bank of Baroda.
In April Consumer Price Index (CPI) inflation accelerated to a three-month high of 8.59%, mainly driven by higher food prices compared with 8.31% in March.
The broad trading range for the rupee is seen between Rs 58-61 in the next few months. "The euphoria has kind of ended for the Modi government. The rupee will be trading in the range of Rs 58-61 per dollar in the next 3-4 months. RBI too may not allow the rupee to appreciate much. Besides, FII flows have slowed down little bit," said Abhishek Goenka, founder & CEO, India Forex Advisors.
However, few experts believe the long-term outlook for the rupee is bullish. "Long term outlook for Rupee is indeed bullish given the high level of optimism on India and limited risks from external headwinds; barring unforeseen setbacks. It is also difficult for the RBI to arrest strong bullish momentum of rupee; at best it could only arrest the speed of rupee appreciation. All taken, between Rs 55 and Rs 65, rupee's medium to long term outlook is into Rs 55 and RBI should gear up for this," said Moses Harding, group chief executive officer (liability and treasury management) & chief economist of Srei Infrastructure Finance.