Rupee likely to stay volatile in near term

The rupee, which has depreciated by 6 per cent over the past month, is likely to stay “volatile” in the near term but the worst may be behind us, Bank of America Merrill Lynch today said in a research note.

The domestic unit had yesterday hit a life-time low of 58.98 against the dollar but erased a major part of its losses to close at 58.39 after the RBI intervened in the forex market to stem the slide.

The rupee, however, still closed 24 paise lower at 58.39 compared to its previous day’s close, extending the losses for fifth straight day.

In early trade today, the rupee recovered by 19 paise to 58.20 against the dollar.

“We feel that most of the depreciation may be behind us as gold imports are reducing and likely to fall given the measures taken by the government. Secondly oil prices are stable and thirdly the government may be forced to raise flows through NRI bonds,” BofA-ML said.

The report further said that in the near term, the rupee is likely to be volatile due to global events and the RBI will have to instil confidence in the market.

Emerging market currencies

The rupee has weakened from 53.8 levels in April-end to over 58 levels at present and is also among the worst performing emerging market currencies in the 2013 so far.

According to BofA-ML, the rupee volatility raises near term risk to inflation and to a rate cut this month.

“The markets will be volatile in line with global trends and near term we may see some more correction,” it added.

The Indian benchmark S&P BSE Sensex had yesterday slumped 298 points or 1.53 per cent. The 30-share benchmark index extended the fall further today as it was trading at 18,982.59, down 160.41 points.

Meanwhile, FIIs sold shares stocks worth Rs 885 crore, as per the provisional data with stock exchanges.

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