Rupee seen up on GAAR deferment

The Parthasarathi Shome panel’s recommendation of deferring the general anti-avoidance rules (GAAR) for three years is expected to boost foreign investor sentiments and help the rupee strengthen against the dollar.

On Friday, the rupee closed at 55.53 per dollar with depreciation of 0.05 per cent over the week. It is expected to appreciate by 30-40 paise depending on the foreign fund inflows in domestic equities. “The deferment of GAAR for three years will have a positive impact on the equity markets. This will also help the rupee,” said N S Venkatesh, head of treasury at IDBI Bank. He expects the rupee to trade between 54.75-55.25 per dollar this week. Foreign institutional investors have injected $11.3 billion in to Indian equities in 2012 so far.

On Saturday, the committee recommended that GAAR be postponed for three years. Uncertainty on domestic policies, including GAAR, had led to sharp volatility and depreciation in the exchange rate of the rupee.

“Clarity on GAAR should have a positive impact on the rupee. It will depend on how the markets react on Monday,” said Abhishek Goenka, founder and chief executive officer, India Forex Advisors. He expects the rupee to appreciate by close to 55 per dollar levels. In the past one year, the rupee has lost more than 20 per cent against the dollar. It traded between 55-55.75 against the dollar in August 2012. Following some stability in the rupee-dollar rate, the Reserve Bank of India (RBI) rolled back some of the restrictions on the spot and forward trading transactions.

According to RBI data, spot intervention in the foreign exchange market came down to $50 million in June from $485 mn in May. However, the outstanding amount in forwards increased to $14 bn from $10 bn in the same period.