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The rupee, which witnessed a steep depreciation and is hovering around 56 a dollar mark, is likely to see a rebound to around 52 levels in the next six months, says report by a Barclay Capital.
“We expect USD/INR to hover around 56 and 54 in one and three months, respectively, with the risk biased to the upside, before easing only modestly to around 52 and 51 in six and 12 months, respectively,” Barclays Capital said.
Rupee had fallen to 56.07 to a dollar in the morning trade today, after yesterday’s close of 55.65. In the mid-session, the rupee was trading 26 paise higher at 55.39 on fresh selling of dollars by banks and exporters.
The report further cautioned that any pullback in rupee is likely to be largely dependent on policy initiatives and improvement in global scenario.
“With limited room for improvement in domestic macro fundamentals in the near term, any pullback in the USD/INR is likely to be largely dependent on policy initiatives or an improvement in global risk appetite,” the report said.
The fall in rupee assumes significance as commodity prices, including crude oil, are falling. Besides, foreign institutional investors’ net sales in Indian equities have also been only modest.
Moreover, the recent measures adopted by the Reserve Bank to contain INR weakness have been far less effective and the government and central bank’s policy options to support the INR also appear to be “limited”, the report said.
“We believe that FX intervention by the RBI would not offer the INR any meaningful or lasting support,” the report said.
Meanwhile, the RBI Governor, Dr D. Subbarao, yesterday had said that “the RBI will do whatever is necessary. Some structural changes are necessary for improvement in current account.
Meanwhile, the RBI is monitoring the situation and we will do whatever is necessary, consistent with our policy.”
Barclays Capital said the RBI may eventually opt to float USD—denominated bonds through public sector banks (like State Bank of India) for non-resident Indian (NRI) investors.
“If well designed and executed, we think, such a scheme could trigger $12-15 billion of inflows in a relatively short amount of time,” the report added.
While we expect the RBI to cut repo rate by a further 50-75 basis points by March 2013, we think it is likely to maintain a more neutral bias in the next one or two policy meetings after the larger-than-expected 50 basis points cut in April.
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