Structural issues to keep rupee weak in near-term: Analysts

PTI Mumbai | Updated on November 15, 2017

The rupee is likely to remain weak in the near-term as factors like low capital inflows and high current account deficit are expected to take their toll on the currency, say industry experts.

“Unless structural issues like high current account deficit (CAD) and balance of payment (BoP) situation improve, the rupee is likely to remain weak in the near future,” Indian Overseas Bank General Manager (Treasury) Mr T S Srinivasan told PTI.

The currency may touch 53.50-54 levels against the dollar in the next two months, he added.

While CAD is likely to touch 4.3 per cent of GDP in FY’12 compared to 2.6 per cent in FY’11, BoP is likely to turn negative for the first time in the past three years in FY’12.

The domestic currency, which touched 52.07/08 against the dollar on Friday, is also coming under pressure on the back of low capital inflows.

“Due to lack of clarity on the issue of taxation and some provisions of the proposed general anti-avoidance rule (GAAR), foreign institutional investors are on a wait and watch mode, which impacts the inflow to the country. Unless there is more clarity on these issues, rupee will remain under pressure,” IndusInd Bank global markets group head Mr Moses Harding said.

As to possible intervention by the RBI to check the rupee fall, he said probability of intervention was strong.

“The RBI is likely to intervene if the rupee weakens further. But it has to be substantial to be effective,” Mr Harding added. Between last November and March, the RBI pumped in nearly $10 billion to prop up the rupee.

Earlier, a research note of Religare Macquaire Wealth Management also forecast that the rupee is likely to be under pressure in the near-term amidst weak global demand and sticky imports.

The banking officials also said that the government has to take steps to attract FIIs to finance the widening CAD, which will support the domestic currency.

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Published on April 22, 2012
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