Business   

Rupee losing grip?

By Oommen A. Ninan

MUMBAI NOV. 26 . The strengthening of the rupee has come to a halt. When everyone thought that the rupee would reach the 45 level by the end of the calendar year, suddenly the sentiment changed and the rupee took a u-turn and is now all set to weaken further to the 46 mark.

The rupee has strengthened over 6 per cent from January 1 to November 7. But in the last few days the rupee has weakened over one per cent, reaching a high of 45.96 on November 25.

It is debated whether the rupee's sudden dip is due to an artificial move engineered by the regulator or a sudden demand arising out of a negative sentiment. There were clear indications from the Reserve Bank of India, right from the review of the mid-term monetary credit policy on November 3 till its last circular on external commercial borrowings control, that all dollar payables needed to be hedged. This raises doubt in one's mind that the move to weaken the rupee was a well administered rather than the result of market forces.

In fact, this sudden weakness of the rupee could be a gain for the exporters who had not hedged their receivables. "We do not see this as a reversal trend of the rupee but rather an adjustment of the exchange rate by the regulators,'' said K. N. Dey, director, Basix Forex. With the expected growth in the economy of over 7 per cent and healthy investment inflows, the chances of seeing further weakness in the rupee is ruled out. Also, this is happening when globally the dollar is weakening against all major currencies.

"The weakening of the rupee could be around the 46.10-46.25 level wherein we could again see the rupee strengthening,'' said Mr. Dey. It has always seen in the past that as and when the rupee weakened vis-a-vis the dollar, the forward premiums shot up. This was seen at the time of Southeast Asian crisis (1997), Pokhran-II nuclear test (1998) and Kargil War (1999). As of today it is not the case.

Forwards are the interest rates differentials under a fully convertible currency regime. If one looks at the forwards as an interest rate differential (when the currency is fully convertible and assuming that the rupee is also fully convertible) then the existing forwards clearly indicate that the Indian interest rates are lower than the U.S. interest rates, which is not. But in the current scenario the forwards have gone into a discount up to six months.

This clearly indicates that the present weakness of the rupee could be the re-adjustment of the exchange rate and might not last long. By the beginning of the 2004, the market may witness the rupee strengthening again against the dollar and at the end of the financial year 2004 around 45.25/30 levels.

Printer friendly page  
Send this article to Friends by E-Mail

Business

News: Front Page | National | Southern States | Other States | International | Opinion | Business | Sport | Miscellaneous |
Advts: Classifieds | Employment | Obituary |

Stories in this Section

• Virgin looking at South Indian destinations
• Wendtsoft launches 2 new products
• Corum comes to Chennai
• Coffee Day enters packaged business
• Implementation key to success in e-governance
• Rupee losing grip?
• HDFC Standard premium income up
• TRAI puts off new IUC regime
• Tyco to launch wireless products
• Tata Indicom cuts ILD tariffs
• Digital Video plans unit in Bangalore

Copyright © 2003, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu