The approaching US Fed meeting and ongoing geopolitical concerns support an environment of broad dollar strength, according to a Standard Chartered global research report.

A strengthened dollar could mean that the pull-back in dollar-rupee is temporary, the report said while taking stock of the priorities outlined by new Reserve Bank Governor Raghuram Rajan.

Neutral rating

“We maintain a short-term neutral rating on the rupee. We are more constructive on rupee in the fourth quarter of the year when we expect a combination of an improving current account and weaker dollar to support the currency,” the report said.

The measures outlined by the new Governor are constructive and reinforce the sentiment visible following the announcement of forex swap facility for select oil marketing companies.

The down-move could be sharper this time, as the measures are targeted at reducing the current account deficit-financing concerns as opposed to just managing dollar demand.

Expected inflow

Standard Chartered expected that the new measures announced could attract $10-15 billion in the next two to three months.

Containing inflationary pressures is likely to be a priority for Rajan. Previous recommendations on financial-sector reforms in 2008 indicate that he favours inflation targeting as a single objective.

The Governor also indicated that the market should be prepared for more change, not all of which is likely to be pleasant.

The measures have been cheered by rates markets. The most important local event now is the rollback of liquidity tightening measures, which depends critically on rupee.

“We expect the Reserve Bank to begin the rollback during the fourth quarter,” the report said.

>vinson.kurian@thehindu.co.in

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