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Indian rupee ‘unlikely to recover aaginst dollar’

Bangalore, August 11, 2013

The Indian rupee is unlikely to regain ground against the US dollar over the next year as a wide current account deficit and weak reserves weigh on the currency, while the Chinese yuan will strengthen a little to fresh record highs, a Reuters poll showed.

The rupee has lost around 12 per cent to the dollar since the beginning of May after the US Federal Reserve said it would begin reducing its stimulus to the economy, prompting foreign investors to sell assets in emerging markets ranging from India to Brazil, said a report in the Gulf Daily News, our sister publication.

It hit a record low of 61.80 to the dollar on Wednesday.

Although the Fed toned its view soon after saying that any withdrawal of stimulus would depend on brighter economic conditions, the sell-off in emerging markets threw into stark relief the structural problems in the Indian economy.

The poll of 17 analysts taken over the past week showed a bleak outlook for the rupee, which is expected to trade around 61 by the end of August, 59.75 in six months and 60.50 by July next year. Those predictions are not far from Thursday's closing rate of 60.72, although they are markedly weaker than a similar poll last month which showed the rupee would strengthen to 57.50 by June 2014.

India's record current deficit, currently at 4.8 per cent of gross domestic product, is the primary reason behind the fall in the currency. "It will be a bumpy ride ahead for the rupee," said Sook Mei Leong, Asean head of global market research at BTMU in Singapore.

"India's almost insatiable demand for oil and gold are the main reasons for structural weakness in the current account deficit (CAD). The rupee could enjoy some respite if the US dollar underperforms, and/or the CAD narrows."

While the government has announced steps to curb gold imports, elevated global crude oil prices could inflate the country's import bill further.

The poll also showed the Chinese yuan will firm slightly to 6.07 in 12 months, unchanged from the July poll, even as the currency hit an all-time intraday high on Thursday, bucking a weak trend in emerging market currencies.

The People's Bank of China set its official mid-point at 6.1668 on Friday, up 0.04 per cent from Thursday. It has allowed the yuan to appreciate through its official reference rate every day this week. – TradeArabia News Service




Tags: Currency | Dollar | Yuan | INDIAN RUPEE | Reserve Bank |

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