Nifty99000 100%

Sensex99000 100%

Article rating: No rating
Article rating: No rating
Article rating: 5.0
Article rating: 5.0
Article rating: 5.0
Article rating: 5.0
Article rating: 5.0
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: 4.0
Article rating: 5.0
Article rating: 3.3
Article rating: 5.0
RSS

News

Re may trade at 69.79 in H2 if RBI mops up $30 bn from NRIs

Author: PTI/Thursday, October 25, 2018/Categories: Currency

Re may trade at 69.79 in H2 if RBI mops up $30 bn from NRIs

Mumbai, Oct 25 - The rupee may average at 69.79 to the dollar in the second half, down 8.3% from the first half if the monetary authority props it up by mobilising at least USD 30 billion from NRIs as it has done in 2013.

The rupee is the worst-performing emerging market currency losing over 15% year-to-date, while in the first half it averaged at 68.57 to the dollar, down 8.3% year-on-year, making the depreciation at a five-year high so far, says an India Ratings report.

Following the market mayhem and the rupee plunge after the Fed 'taper tantrum' in summer of 2013, RBI mobilised USD 25 billion from non-resident Indians. The move was initiated by the then governor Raghuram Rajan soon after he took over the RBI reins in September that year.

"The rupee depreciation against the dollar so far is at a five-year high. But a longer term view suggests that average depreciation during FY15-FY19 will be only 3%, which is at par with the 20 years (FY1999-FY18) average depreciation," Devendra Pant, the chief economist at the agency said in a note Thursday.

He further said the rupee may average at 69.79 to the dollar in the second half, down 8.3% from the first half provided the RBI mops up at least USD 30 billion from NRIs as it has done in 2013.

According to him, the rupee pain emanates from global developments such as strengthening dollar; high commodity prices especially of crude oil; rising US rates, coupled with domestic factors like widening trade/current account deficit, inflationary pressures and likely fiscal slippage.

"The current bout of a sharp deterioration in the rupee is the fourth such instance in the current decade indicating its vulnerability to global events," he said.

It can be noted that after-2013 episode when it had plunged to 86.83 to a dollar on August 30 that year, the rupee has enjoyed a relatively stable run, due to mobilisation of NRI deposits in foreign currency non-repatriable account; crash in global commodity prices, especially crude from September 2014, and delayed monetary tightening by the US Fed.

"But all these changed at the turn of FY19 due to a sudden spurt in oil prices and a reversal in capital flows, although chinks in this seemingly happy equilibrium had emerged in FY18 itself," he said.

The country meets over 82% of oil demand by crude imports. Though dollar requirements to fund merchandise imports has risen, there has been no commensurate earnings from merchandise exports.

While the first line of rupee defence has traditionally been invisibles, remittances and software earnings, this time around these could not grow at the same pace as merchandise imports. This widened the current account deficit, and put the rupee under pressure.

The second line of defence comes from the capital account, where portfolio investments, FDI and ECBs play the key role. As long as US interest rates remained low and arbitrage was attractive, portfolio investments kept pouring in, not only keeping the rupee steady, but also leading to rupee gains during 2014-17.

But with US rates rising, the country saw net outflows of about USD 8.14 billion in the first half of the fiscal, leading to sustained rupee weakness throughout this fiscal.

Pant also advised against import controls to defend the rupee and warned that the recent government decision to slap higher import duty on select items at best may impact some of the electronic goods category only.

Total contribution of electronic goods to trade deficit during April-August 2019 was 28.1%, while petroleum products, which largely have inelastic demand, contributed a whopping 48.2% of trade deficit during the same period.

Print Rate this article:
No rating

Number of views (203)/Comments (0)

rajyashree guha

PTI

Other posts by PTI
Contact author

Leave a comment

Name:
Email:
Comment:
Add comment

Name:
Email:
Subject:
Message:
x

Videos

Ask the Finapolis.

I'm not a robot
 
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
 
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest
 
 

Categories

Disclaimer

The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free