Rupee to depreciate 3.5% by Dec : Morgan

JP Morgan Chase Bank expects the Indian rupee to depreciate by 3.5 per cent by December 2005 to 45 per dollar.

"It is a weakening from a real nominal term but as it compares to its real effective exchange rate (REER), it's a moderation, and probably a welcome moderation," said Claudio Piron, the Singapore-based Head of Asia Forex Research at JP Morgan Chase Bank.

The rupee has actually appreciated "quite a bit" in terms of REER adjusted for its trade weight and inflation differential against major trading partners. When asked whether the Reserve Bank of India (RBI) will allow the rupee to depreciate to 45 per dollar by December, Piron said JP Morgan's views on the rupee takes all factors into account.

He said the rupee will further depreciate to 45.50 per dollar by March 2006. The problem area for India is the persistent trade and current account deficits and hence, the view that the rupee will depreciate over a six month horizon cannot change.

Piron said Asian currencies have challenging times ahead as now the risks will emanate from two major Asian currencies.

Earlier it was only the yen, and now Chinese yuan has also been added after the Chinese authorities revalued the currency by 2.1 per cent on July 21. Yuan closed at around 8.1027 per dollar.

"We are very bullish on the renminbi (yuan) as China is likely to reorient to a domestic demand-driven growth from the export-led growth so far," he said.