Rupee may weaken from current levels despite FII flows

Street says govt should take steps to boost exports, control imports

The street is of the view that the rupee may weaken further against the dollar by the end of the month and may touch Rs 55.50 per dollar. According to dealers the inflows from Foreign Institutional Investors (FIIs) will continue, but that may not be sufficient as there is a need to trim down imports and boost exports.

The Current Account Deficit (CAD) in the quarter ended December 31 rose to a record high of 6.7% of gross domestic product (GDP). Finance Minister P Chidambaram has assured that the CAD for the fourth quarter (January-March) is expected to be smaller. "India may continue to attract FII flows as there are roadshows happening in various places of the world to attract flows. But if the CAD needs to be brought down, there is a need to bring down imports and boost our exports," said a currency dealer with a public sector bank.

FII poured more money into Indian equities in the financial year ending March 2013 than they have in any year since they were permitted to invest in these, 21 years ago. In a recent interview to Business Standard,Brijesh Mehra, managing director and country head-international banking for India, Royal Bank of Scotland said that FII flows for the rest of 2013 look reasonably robust, as there is a lot of liquidity in the market globally.

But currency experts are of the view that the huge oil and gold imports are a cause of concern for our economy. The rupee has weakened by almost 8% against the dollar since April 1, 2012. According to currency dealers by the end of this month it may touch Rs 55.50 per dollar. On Friday it ended at Rs 54.81 compared with previous close of Rs 54.88.

RBI continues to be concerned about CAD. In the mid-quarter review of the monetary policy held last month the central bank had said in the statement, “Risks on account of the CAD remain significant notwithstanding likely improvement in Q4 over an expected sharp deterioration in Q3 of 2012-13. Accordingly, even as the policy stance emphasises addressing the growth risks, the headroom for further monetary easing remains quite limited.”