Has risen 0.75% in first week of 2012 to be one of the best performing Asian currencies.
Till early December 2011, it appeared there would not be any near-term relief for the rupee value against the greenback. Some analysts even predicted the currency would fall to 58 a dollar. But, things have taken a U-turn in the past month after the Reserve Bank of India (RBI) stepped in to stem volatility in the foreign exchange market.
The result: Forex trading desks now expect the rupee to appreciate against the dollar by the end of this calendar year and an improving macroeconomic environment is likely to strengthen the gains further.
"It is quite possible that any big capital inflows, on materialisation, can move the rupee up very swiftly. On the other side, any bunch of dollar payments can by supported by RBI's intervention, which has become very effective now, to cap the big fall in the exchange rate," Param Sarma, director and chief executive officer of NSP Forex, said. He expects the rupee to move in the range of 52-53 a dollar in the coming weeks.
In 2011, the rupee was the worst performing Asian currency depreciating, almost 19 per cent against the dollar. It touched an all-time low of 54.35 a dollar in the last week of November.
The sharp depreciation prompted many analysts to predict a further slide. HSBC Bank, for instance, had predicted in November the currency may depreciate to 58 a dollar.
On December 15, 2011, the RBI restricted rebooking of cancelled forward contracts and reduced the net overnight open position limit or trading limits for banks in the foreign exchange market. The move was aimed at curbing volatility in the foreign exchange market, which had nearly doubled in less than six months.
"It seems to us, at least for the time being, that the local market stung by the stiff regulatory guidelines is relatively insulated from the adverse developments in the euro zone," Sarma said.
In the first week of this calendar year, the rupee appreciated 0.75 per cent and was one of the best performing currencies in Asia. "It is more of a 'risk on' environment now, as compared to December. Asset classes considered risky, like commodities and equities, have done relatively better in January. This has benefited the rupee to some extent, apart from the regulatory measures," said an economist with a foreign bank.
Standard Chartered Bank expects the currency to remain around 53 a dollar till March 2012 and then appreciate to 48.5 by the end of the calendar year.
“We maintain our overweight medium-term (three to 12 months) foreign exchange rating on the Indian rupee... The gains in the Indian rupee are likely to accelerate in the second half of 2012 as higher growth and lower inflation will lead to FII (foreign institutional investor) inflows, and stronger risk appetite weighs on the dollar,” the foreign lender said in a note to its clients last week.
Economists and analysts at Australia and New Zealand (ANZ) Banking Group, Barclays, Bank of America Merrill Lynch, BNP Paribas, Citigroup Global Markets, Morgan Stanley, Nomura Financial Services, and UBS echoed a similar view in their outlook on the exchange rate of the rupee against the dollar for the calendar year.
