A sharp deterioration in the trade deficit and slower government reforms are set to add to factors weakening the rupee again against the dollar by end-December.
Business Standard did a poll in September and at the time, currency experts were expecting the rupee to be in the range of Rs 50-54 to a dollar by end-December. But, many have revised their estimates and say there is a fair possibility of it breaching the Rs 56 a dollar mark between now and December end. “The rupee will move in a range of Rs 56.2-54.5 a dollar till December end. Our non-oil imports are $30 billion higher than our exports. Exports are not able to fully meet non-oil imports. We have $163 billion oil imports. Even if you assume invisible items to be $110 billion, we are heading towards a current account deficit of $83 billion. That is why capital flows are under pressure,” said Mohan Shenoi, president, group treasury and global markets, Kotak Mahindra Bank.
The situation is such that favourable external cues might not help the rupee.
| RUPEE VERSUS DOLLAR (By end December) | ||
| Organisation | Current estimate | Previous estimate |
| IndusInd Bank | 54.00 | 50.00 |
| FirstRand Bank | 55.50 | around 52.00 |
| Kotak Mahindra Bank | 55.50 | 52.00-54.00 |
| IDBI Bank | 54.00 | - |
| Federal Bank | 54.50 | - |
| Union Bank of India | 55.00 | - |
“The rupee will be under pressure due to weak economic fundamentals and the absence of confidence in reforms by the government. Though external cues are favourable, that will not help, given the type of economic crisis we are in,” said J Moses Harding, head, economic and market research, IndusInd Bank.
India’s CAD for the quarter ended June declined to $16.4 billion from $17.4 b in April-June 2011, on a moderation in the trade deficit and rise in remittances from Indians abroad. However, as a proportion of gross domestic product (GDP), it marginally went up to 3.9 per cent for the first quarter of FY13 from 3.8 per cent for Q1 of FY12.
However, a few experts do not expect much of a movement in the rupee against the dollar from the current levels. “Portfolio flows remain strong and that will help to balance the overall CAD. Besides, the bulk of it, the trade part, is already known,” said Hitendra Dave, managing director and head of global markets, India, at Hongkong and Shanghai Banking Corporation (HSBC). The October trade deficit stood at a record high of $21 billion. In September, HSBC had revised its forecast of the rupee against the dollar to Rs 52 from its earlier one of Rs 57 by December.
Sonal Varma and Aman Mohunta of Nomura Financial Advisory & Securities (India) said in a report last month that the CAD had worsened again in the quarter ended September. Nomura estimated it had worsened to an all-time high of around 4.9 per cent of GDP, compared with 4.2 per cent during the same quarter a year before, due to a sharp deterioration in the trade deficit.
