Rupee to remain above 59/$ this quarter

Respondents wanted govt to fast track stuck up projects, ease curbs on FIIs and ECBs

Even as the government took a slew of measures to attract dollar inflows into the country, a majority of respondents to a survey by the Confederation of Indian Industry (CII) do not expect much appreciation of the rupee against the greenback in the current quarter.

Respondents to the survey wanted the government to take more reform measures including fast tracking of stuck up projects, easing curbs on foreign institutional investors (FIIs) and external commercial borrowings (ECBs). Fearing a rise in imported inflation due to rupee depreciation, most respondents say this would not allow RBI to cut policy rate in its next monetary review.

Around 56% respondents in the survey, conducted among the chamber's economic policy members, expected the rupee to trade above Rs 59 to a dollar mark by end-September this year. The rupee last closed at 60.24 against the dollar.

Another 15% of the respondents expect the currency to remain in the vicinity of Rs.58-59 to a dollar as weak sentiments would continue to drive down the rupee. Around 22% displayed cautious optimism saying the rupee will rise marginally to 57-58 to a dollar, while only 7% of respondents expect it to bounce back to Rs 56-57 to a dollar range by September end.

None of the respondents expected the rupee to move up beyond the 56-57 range in the current quarter.

CII director general Chandrajit Banerjee said, “The large current account deficit and our growing vulnerability on the external front have largely contributed towards the secular decline and the current volatility of the rupee."

Rupee has depreciated 9.82% to 60.24 against a dollar since the start of the year 2013.

The majority of the respondents have cited high current account deficit and burgeoning gold imports as the topmost reason for recent downslide of the rupee followed by expectations of tapering of Quantitative Easing by the US Federal Reserve. Other reasons such as weak domestic sentiments, rising demand for dollars by importers, among others also matter but their significance was cited much less.

The survey was unanimous about the adverse impact of the rupee decline on the economy. A majority of respondents reported that the weak rupee would contribute towards imported inflation due to a rise the oil import bill.

This may discourage the central bank from cutting the policy rates in the next monetary policy review.

Another significant impact, according to respondents, would be the rise in under- recoveries of the oil marketing companies which in turn would raise the subsiby bill of the government and consequently push up the fiscal deficit, going forward.

The impact of rupee depreciation would also be felt on the import oriented sectors as well on external borrowings but these were rated to be less important  consequences of the rupee fall.

The opinion of the respondents was divided about the intervention of the RBI to stem the slide of the rupee. While the majority (53%) felt that RBI should not intervene in the foreign exchange market to arrest the rupee fall, a significant chunk, around 47%, supported RBI’s intervention.

All the respondents, however, agreed that the recent measures taken by the government were not sufficient to stem the fall of the rupee.

The respondents emphasized on the need to continue with the reform agenda. Among the reform measures to be undertaken, the respondents recommended fast tracking 50 mega projects exceeding Rs 1,000 crore and 200 large projects between Rs 250 and Rs 1,000 crore in the next six months; further easing restrictions on foreign institutional investors and external commercial borrowings flows, removing short term capital gains tax on FII; addressing constraints in mining and land acquisition and clearing policy hurdles which come in the way of FDI.