| PN Impact: Re above 39/$ or below 40/$? |
| BS Reporter / Mumbai October 17, 2007 |
| The rupee is expected to be volatile in the short term in the wake of the proposed restrictions on investments by overseas investors through participatory notes, but is expected to continue its strengthening spree and breach the 39 per dollar level in the next few months. "In the short term, the rupee will be volatile. However, in the long run, we will see the rupee breach the 39 per dollar level. The inflows will change nature as we would increasingly see more foreign institutional investors (FIIs) register themselves,'' said Parthasarthy Mukherjee, head (treasury) of Axis Bank. The spot rupee, which dropped to a low of 39.96 in early deals, closed at 39.55 per dollar after Sebi chairman M Damodaran and Finance Minister P Chidambaram clarified that there are no plans to ban foreign inflows via participatory notes. The rupee had closed at 39.35 per dollar on Tuesday. Of the $17 billion foreign portfolio equity inflows this calendar year, close to $10 billion have likely been through PNs, which are offshore derivative instruments. "PNs have been a major and chronic source of contention between Reserve Bank of India (RBI) and the ministry of finance (MoF), However, Sebi's announcement suggests that the MoF has given up owing probably to the surge in capital inflows and the challenges these are creating for monetary management by the RBI," JP Morgan Chase said in a note on Sebi's discussion paper on the proposed curbs on investments through PNs. A key worry with policymakers appears to be that PNs are being abused by promoters and possibly politicians as their funds parked overseas come back into India via the PN channel, JP Morgan Chase added. The RBI |
