Re seen near 52/$ by Dec

Withholding tax cut helped the currency gain 1.7%

The rupee, which ended at a four-and-a-half-month closing high on Friday, is expected to strengthen further in the near term. The Street expects it to hover near Rs 52 per dollar by end-December.

“The third round of quantitative easing (by the US Fed) and the start of reforms will have a positive impact on the rupee. Besides, this current account pressure is expected to be limited. I expect the rupee to be around Rs 52-52.50 against the dollar by December,” said Abheek Barua, chief economist, HDFC Bank.

On Friday, the rupee opened at Rs 54.16 against the dollar, touching a high of Rs 53.34 during the day and ending at Rs 53.47 compared with yesterday’s close of Rs 54.39. The government decision to cut withholding tax on borrowing by Indian companies abroad, lowering the borrowing cost for these firms, helped the rupee gain, dealers said. The government's reform push is also expected to avoid a rating downgrade.

The changing fortunes of rupee

• After depreciating 26% in one year till end-July, the rupee has strengthened 4% since
• Market participants see rupee going up to 52/dollar by 2012-end
• Currency seen gaining pace on the back of durable inflows 
• Rupee gets support from additional liquidity due to QE3 stimulus from US Fed
• Higher ECBs after relaxation in tax obligation will support rupee 

"Rupee appreciation is mainly reflecting the positive sentiment of investors towards the currency and the country. Any more reform measures will add to the mood," said Hitendra Dave, managing director, head of global markets, India at Hongkong and Shanghai Banking Corporation (HSBC). He expects further appreciation of about one per cent from current levels in case the slew of investor-friendly measures continue to be announced.

J Moses Harding, head, economic and market research, IndusInd Bank, concurred. “Now that the government has acted firmly on fuel price rise and roll-out of the next round of financial reforms, the risk of a sovereign rating downgrade is not relevant. The strong headwind from the external sector in the form of availability of liquidity and a near zero-interest rate regime till 2015 will address issues relating to the balance of payment,” he said.

According to Harding, the government’s proactive stance will be followed with Reserve Bank of India’s growth-supportive monetary stance, due to which, in the near term, the rupee should regain its February 2012 high of Rs 48.60 per dollar. The new short-term range will be at Rs 49-54, with the near-term objective at Rs 52 against the dollar, he said.

Earlier this year, the rupee had touched an all-time low of Rs 57.16. After depreciating 26 per cent in one year till end-July, the rupee has strengthened four per cent since then.

According to Harihar Krishnamoorthy, treasurer, FirstRand Bank, this was because sentiments were negative. But now exporters are selling dollars heavily due to which Krishnamoorthy sees the rupee at Rs 52 against the greenback by December.

Some are, however, giving a slightly broader range for the rupee against the dollar. “The range from now to December is seen at Rs 52-54. There will be lots of foreign funds inflow into the country and help in strengthening of the rupee,” said Mohan Shenoi, president, group treasury and global markets, Kotak Mahindra Bank.

Pramit Brahmbhatt, CEO, Alpari Financial Services, expects the trading range at Rs 52-53.50 by end-December.

On Monday, HSBC Global Research had revised its forecast to Rs 52 from its earlier forecast of Rs 57 by December. In fact, HSBC has also revised the forecast of the rupee against the dollar to Rs 49 by September 2013 from its previous one of Rs 57.