For market participants, the level of the rupee does not matter as much as its stability. While concrete measures are awaited, the currency may fall beyond the next psychological level, shows a dip stick poll conducted across bank treasurers and economists.
About 70 per cent of the respondents expect the rupee to fall past 58 per dollar in the near term, irrespective of the measures the government and the Reserve Bank of India (RBI) may take, as these will show results in the medium- to long-term. “What we are seeing in the market is a function of global risk aversion. If this uncertainty continues for a longer period, there is scope for further depreciation in the rupee from current levels,” said Samiran Chakraborty, regional head of research (India), Standard Chartered Bank.
Last week, the rupee lost three per cent against the greenback, as investors across the globe took flight to the safe haven currency. It closed at a fresh record low of 57.16 after touching an intra-day low of 57.33 per dollar on Friday. “The rupee has entered a vicious cycle. The global situation is not comforting and there are a lot of negatives attached to the currency that both the government and RBI have failed to address so far,” said Abheek Barua, chief economist, HDFC Bank. Last week, the dollar index against six major global currencies rose to 82.47 levels. “The dollar looks bullish, going forward, as people may have no other choice,” said Abhishek Goenka, founder & CEO, India Forex Advisors.
While a near-term jerk is inevitable, market participants hope for a bounce-back in six to eight months, which might not be significant. “The optimism is because we expect the government to push for reforms, leading to higher capital inflows. In other developed economies the yields are still lower than India,” said Brinda Jagirdar, economist, State Bank of India.
Foreign investors are willing to put in money but for now they are in a wait-and-watch mode because of uncertain market conditions, she added.
Pawan Bajaj, general manager-treasury at Bank of India said there could be some reversal “if concrete measures are taken but it may not help unless they are implemented”.
Broadly, two things need to be watched. “First, the way oil prices move. The second critical thing is the comments from rating agencies, since their views will reflect the macro situation,” said Chakraborty.
Corporate India is even more pessimistic and expects the rupee to go past 60 a dollar. For, R Shankar Raman, whole-time director and Group CFO, L&T, it’s a complicated scenario. Trade related issues have a Rs 1-1.50 effect on the currency. Fundamentally confidence is low. “RBI could have intervened more strongly, but in the repo market, there is over Rs 1 lakh crore of borrowings from the system and this signals tight liquidity. But perhaps we can have some more flexibility in forward contract cancellations. If the rupee touches 60, it’s a 20 per cent correction in three months and market economics cannot sustain this. I don’t see 60 as a sustainable barrier. It ought to be closer to 50 (53-54) than 60,” he said.
V Ashok, chief financial officer of Essar Group, said a 26 per cent depreciation in the rupee in a year is very surprising. “This is a demand-supply maths. You have to get FII, FDI inflows. The currency fall shows the India story has taken a severe beating. Few months back, we thought 55 is the barrier for the rupee. It’s already 57. Don’t know now if 60-65 is the barrier now. Nobody can confidently say how the rupee will behave,” he said.
GMR’s group chief financial officer A Subba Rao, said the decline in rupee will not stop unless the government restores investors’ sentiments and initiates sustainable reforms process to assure the return of India in the growth trajectory. “For example, to undo the negativity, the government needs to annul the retrospective amendments. The currency market is linked to the policy collapse, as there are no inflows or investments and outflows have gone up significantly. Unless the government starts acting, who knows the rupee can touch even 70”.
P K Goyal, director finance, IndianOil Corporation, said the fall in the rupee has impacted the company’s rupee and foreign exchange borrowings. “Last year our borrowings were $4.4 billion; we have already crossed $6.7 billion, so far. Every fall in the rupee is pushing our working capital requirement up by Rs 450 crore,” he said.
The rupee has depreciated 30 per cent since it touched the three-year high of 44.08 per dollar in August 2011. RBI began intervening in the spot foreign exchange market from September and has sold a little over $20 billion since then. The apex bank took several measures to attract foreign fund flows and cut speculative trade because of which January-February period saw about seven per cent appreciation in rupee. However, rupee has been on a down slide since then due to global headwinds.