Rupee appreciation seen temporary as uncertainties still remain

Experts are of the view that rupee is undervalued

The rupee might have rallied today on RBI's steps but the appreciation is seen as temporary by the street as global and domestic uncertainties still remain.

At noon, the rupee was trading at Rs 66.02 compared with previous close of Rs 67.09 per dollar. The rupee had opened at Rs 66.10 today.

“This is the initial reaction to the Raghuram Rajan’s comments yesterday. Besides, those global uncertainties on an immediate Syria war are also easing. The US will take some time to prepare for the war. The steps announced by Rajan will have positive impact in the long-term, but before that we have the general elections and there will be uncertainties in the market due to that. The global investors who have sold their domestic investments may not come back so soon,” said Pramit Brahmbhatt, CEO, Alpari Financial Services (India).

However, Brahmbhatt added that if the rupee strengthens from current levels to Rs 62-63 per dollar then we can hope for the positive sentiments created by Rajan to last longer.

To provide exporters/importers greater flexibility in risk management, RBI enhanced the limit available to exporters to 50%. The limit for importers was raised to 25%. RBI also offered a window to banks to swap fresh foreign currency non-resident (bank) deposit or FCNR(B) dollar funds. These are mobilised for at least three years, at a fixed rate of 3.5% a year.

"We have decided the current overseas borrowing limit of 50% of the unimpaired tier-I capital would be raised to 100% and the borrowings mobilised under this provision can be swapped with RBI at the option of the bank at a concessional rate of 100 basis points below the ongoing swap rate prevailing in the market," Raghuram Rajan, governor, RBI said yesterday in his speech.

Meanwhile, experts continue to view the rupee as undervalued.

“The rupee appears undervalued. The more undervalued it gets, and the longer it stays that way, the quicker will be the macro rebalancing that India needs. This will then pave the way for lower yields and higher share prices,” said Ridham Desai, Sheela Rathi and Utkarsh Khandelwal of Morgan Stanley in a note to clients.