The rupee is likely to appreciate against the dollar over the next two months as the uncertainty surrounding the US Presidential elections has come to an end, experts say.

They feel that quantitative easing in the US will continue in President Obama’s second term and the funds could find their way into the emerging market economies like India.

“There is a preference among portfolio investors to invest in emerging market economies,” Rupa Rege Nitsure, Chief Economist, Bank of Baroda said.

Barack Obama won a second term in the US Presidential elections. This immediately weakened the dollar against the world’s major currencies.

Because of quantitative easing in Europe, there is lot of liquidity in the system, Nitsure said.

She added that the rupee is likely to be range bound between 52.50 and 53.50 over the next couple of months.

“There will be more foreign exchange inflows into the equity market. This, in turn, will help the rupee,” N.S. Venkatesh, Head of Treasury, IDBI Bank ,said.

He expects the rupee to appreciate to 52.50 by January-end.

Obama faces an immediate challenge of addressing the “fiscal cliff” before the turn of the year. His predecessor, George W Bush’s tax breaks come to an end this year.

Dual challenge

Obama faces the dual challenge of increasing taxes and cutting down expenditure. Both these measures have the potential to push the US economy over the cliff into recession.

How Obama addresses the “fiscal cliff” situation will, to an extent, dictate the course the US and the world economy will take.

Also, Obama’s victory ensures that Ben Bernanke will remain in the central bank as its chief for longer and persist with the bond buying programme of $40 billion every month.

This bond buying would enhance liquidity in the overseas markets, some of which could trickle into India. More dollar inflows into the equity market can make the rupee stronger.

One gram gold ended Rs 30.90 higher at Rs 3,218.90 on the National Spot Exchange.

satyanarayan.iyer@thehindu.co.in

(This article was published on November 7, 2012)
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