RBI steps to provide some short term relief to rupee: HSBC

The rupee is likely to trade around 59 per US dollar by this year-end

The Reserve Bank's measures to tackle rupee volatility is likely to provide only "some short- term relief" to the currency and it is likely to trade around 59 per US dollar by this year-end, says an HSBC report.

 

The rupee, which depreciated over 10% in last one month, is expected to remain under pressure in the medium-term as external market volatility and high current account deficit are still weighing on the currency.

 

"On a medium term however, the rupee is expected to remain under pressure as the current account deficit (CAD) and the ability to attract long-term foreign capital inflows are still major hurdles, as is external market volatility," HSBC said in a research note today.

 

The rupee has depreciated by more than 10% in the last one month and crossed the psychological level of 60 per dollar in June-end and touched over 61-level last week.

 

In a move to stem the continuing fall of rupee, the RBI last night came out with a slew of measures, including hiking the lending rates for banks and sucking up of Rs 12,000 crore.

 

Meanwhile, the Marginal Standing Facility (MSF) rate, which allows banks to borrow money from the central bank at a higher rate when there is significant liquidity crunch, was increased to 10.25% from current 8.25%.

 

"These measures do little to address the structural issues that have caused the Indian rupee to under perform versus the rest of the region in 2013," the HSBC report said.

 

"Efforts to increase capital inflows (via larger limits on FIIs and the opening of new sectors to FDI) also need to go further. We hold a forecast of USD-INR at 59 by the end of the year," HSBC said.

 

The report further noted that although the current account deficit has narrowed, it is still sizeable and provides an enduring demand for dollar onshore.

 

The CAD represents the difference between inflows and outflows of foreign currency and had touched a record high of 4.8% in FY13.