Likely to settle at 52 to a dollar

The downward slide of the rupee may be over. The rupee is likely to level off at around 52 rupees to a dollar.

This assessment is based partly on exchange rate movements over the past six weeks, and partly on recent data from the RBI.

In addition to a rapid succession of measures to curb speculation and boost capital flows (hike in ceilings for FII investment in government and corporate debt; hike in interest rates on NRE deposits, which now offer 9.5 to 10 per cent a year; 100 per cent FDI in single brand retail), the RBI has stepped up direct market intervention.

After selling $1.7 billion in September and October 2011 together, it sold $3 billion in November, the latest month for which figures are available.

Taking a stand

This suggests that the RBI has decided where to take a stand in the matter of trend movements versus volatility.

Though the rupee once again began moving down in December, the movement was small, and it did not persist. The rupee is now back at November's 52 to a dollar.

Bouncing back after unusually depressed flows in September and October, FDI flows, at $23.5 billion in April-November 2011, seem set to revert to trend in 2011-12, after a worrying 25 per cent fall in 2010-11.

FII outflow

August, September and October registered declining FII outflows of $1.8 billion, $1.3 billion and $0.5 billion respectively, and there were no outflows in November.

However, the April-November 2011 aggregate is still practically zero, as against $31 billion in April-November 2010. With the current account deficit projected at $55 billion for 2010-2011, these things matter.

The December figure for FIIs, when released, is likely to be positive. FIIs put Rs 20,000 crore into debt that month, and this money doesn't seem to have come from equities.

COMMENT NOW