Rupee: No fair weather ahead but no storms either

Most of those polled expect rupee to move around 63 in near term

Fears of the rupee sliding further reared its head as the currency breached a psychological mark to close at 63.10 to the dollar. However, a BS poll indicated this was part of a trend in emerging markets and it would only weaken marginally.

Treasury executives and bankers said this time, the markets and the system were better placed to deal with circumstances. For one, foreign exchange reserves are in better shape, thanks to a huge inflow of dollars into non-resident Indian deposits. Second, the current account deficit has contracted significantly, to 1.2 per cent of gross domestic product for the September quarter. And, banks are far more vigilant about unhedged corporate foreign currency exposures. RBI has prescribed stringent provisioning norms for unhedged exposures of their clients.

Most of those polled expected the rupee to move around 63 to a dollar in the near term. The days in August 2013, when it went to an all-time low of 68.85 a dollar are being used as a benchmark to assess present market trends.

N S Venkatesh, chief general manager and head of treasury, IDBI Bank, said global fund managers were offloading some investments in emerging markets to channelise these in the European bond market. European economies are coming out of the woods and their yields on sovereign bonds are gradually moving down. Investors would like to pick up high-yield bonds and benefit from capital appreciation, since the European Central bank has indicated it would like to keep interest low for a long while.

D Ravishankar, director with Brickworks Rating, said from a credit risk perspective, there does not seem to be immediate danger.

Developments in the emerging markets of Argentina and Thailand could weigh on the dollar value.

The US Federal Reserve’s open market committee meets on Tuesday and Wednesday and there is much interest on the outcome.