The depreciating rupee which touched new lows in six consecutive trading sessions, is expected to maintain its poor run for at least the next few weeks, but may recover significantly by the end of the current fiscal to the levels of 61 to a dollar, says research conducted by global financial institutions.
A research report by Indian rating agency Crisil feels that the rupee could recover from its current levels and end FY14 at 60 to a dollar. Explaining the reason behind the positive outlook, it says, “we expect the current account deficit (CAD) to fall to 3.9 per cent of the GDP in FY14 compared to 4.8 per cent last year. The correction in CAD is expected significantly in the second half due to a decline in non-oil imports including gold.”
Barclays, an international bank, has also issued a report and stated that they are expecting rupee to appreciate to 61 per dollar levels in the next six to 12 months. The international bank also reduced the CAD target for India to $68 billion from $80 billion. “Unless capital flows surprise further to the downside, we think the recent improvements mean India should be able to almost fully fund its CAD in FY14,” the Barclays report said.
While holding a positive outlook for the longer term, Barclays maintained that currency would continue to remain weak in the near- term as there weren’t any policy measures that could generate capital inflows in a short time, which was a must in the current scenario. Of all the Asian currencies, rupee has been the worst hit and has depreciated over 20 per cent since April 2013 against the American dollar. Some respite came during August 23 session as rupee rebounded sharply from its all time low of Rs 65.56 per dollar. It recovered by 135 paisa, the second biggest gain in the last decade, and finally closed at Rs 63.20 per dollar.
Another international bank, Deutsche Bank, came out with its analysis of the entire economic situation of the country and how the domestic currency would play out in the coming time. It feels that the blood bath in the currency is going to continue in the near- term but feels that going forward, the currency might recover by the end of the financial year.
The bank feels that rupee will depreciate to 70 per dollar in a month’s time. “We now believe that the rupee could touch 70 per dollar in a month or so, although we expect some revival of the currency by the end of the year.” The bank further added that the short term sentiment towards rupee is extremely negative and expect it to dent the currency movement. But since the country’s CAD is expected to fall, the bank is positive on the longer term.
At the same time it stressed that “given the weak state of the fiscal position, this may entail a major rethink of the expenditure programme, especially plan spending, along with accelerated sales of state-owned assets, and a major external bond issuance with a credible set of macro-fiscal-structural policies”.
Overall, experts feel that the currency may continue to pinch the economy and markets for coming few months but overall currency may stop depreciating and start appreciating towards the end of FY14. But this is only possible if the Government is able to pull it self together and take strong and clear steps immediately.