The Hindu Business Line : Rupee must be allowed to appreciate: HSBC

Mumbai, Nov. 5 India should allow its currency to appreciate in order to prevent an asset bubble in the face of continued foreign exchange inflows, according to Mr David Bloom, Global Head of Foreign Exchange Strategy, HSBC.

On trade-weighted basis, the rupee is 15 per cent below where the US dollar was two years ago, Mr Bloom said. If one takes into account a basket of currencies, then the rupee is 6 cent lower than the long-term average.

“The dollar is being chiselled away. The idea of dollar as the anchor currency is breaking down. Assets in the Anglo-Saxon world are ageing. Emerging markets such as India, China and Brazil enjoy the advantage of a young and dynamic population and this can help investors reap dividends,” he said in an interaction with select media today.

On India building up forex reserves (to $285 billion on last count), Mr Bloom wondered why the country was investing its precious reserves in low yielding US treasuries when it could channelise the same for infrastructure build-up and earn superior returns.

HSBC has raised its GDP growth forecast for FY11 by a notch to 8.5 per cent from 8 per cent predicted earlier because of the likely bounce-back in agriculture output even as it left its forecast for FY10 unchanged at 6.2 per cent.

Pointing out that consumer price index-based inflation, currently hovering around 13 per cent, may have levelled out, Mr Robert Prior-Wandesforde, Co-Head Asian Economics, HSBC, said the wholesale price index based inflation would surge to 8 per cent by February-March 2010 due to increase in energy and metal prices.

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