While the debate over whether the Reserve Bank of India should be buying more dollars to keep the rupee from appreciating continues, broking firms seem to be of the view that the rupee may just have bottomed out. UBS's latest report says it expects the rupee to bottom out soon at around Rs 40.2 to the dollar and says it could go up to 41.2 in a scenario of weaker equity markets. Lower economic activity with IIP growth slowing and a higher trade deficit, especially in the face of the $100 per barrel oil prices, is expected to further ensure the rupee remains weak. While UBS expects the rupee to touch around 40.2 immediately, its six-month forecast is Rs 38.5 to the dollar, going up to Rs 37.8 in another year's time. For the country's beleaguered export community which has seen growth collapse thanks to the rapid appreciation of the rupee, that can only be good news. Of course, with the bad news on the sub-prime crisis yet to play itself out, the outlook on the dollar remains unclear.
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