Rupee to strengthen to 60 vs US dollar by March 2014: CRISIL

CRISIL expects CAD to fall to 3.9% of GDP in 2013-14 with 4.8% last year

Rating agency CRISIL today said that it expects the rupee to recover from its current level and end thus fiscal at 60 against US Dollar.

 

CRISIL said that the two factors would be driving the strengthening of the rupee. Firstly CRISIL expects the current account deficit (CAD) to fall to 3.9% of GDP in 2013-14 compared with 4.8% last year.  Rating agency said fall in CAD would be driven by a decline in non-oil imports, including gold.

 

Secondly, foreign capital inflows are expected to pick up in the second half of the year when the steps announced by the government to attract $11 billion in capital inflows begin to materialise, agency said.  

 

CRISIKL however cautioned that the risks to this forecast  can arise from uncertainty among foreign investors around the impact of the US Federal Reserve’s (Fed) likely pull-back of quantitative easing on global liquidity and risk appetite. “If the roll-back of QE3 progresses at a fast pace then the global liquidity situation will tighten, which will have an adverse impact on emerging market currencies including the rupee” said CRISIL. 

 

CRISIL said that its revised forecast on CAD which is lower than its previous estimate of  4.2% mainly due to the expectation of a sharper slowdown in non-oil import growth, led by a nearly 28-30% fall in gold imports.

 

“Gold imports are likely to ease on the back of restriction on investments in gold bars and coins as well as a hike in customs duty on gold imports to 10%” CRISIL statement said adding that it also expects capital and consumption goods imports to continue to moderate due to weak domestic demand.

 

However, despite a lower CAD, total foreign capital inflows in 2013-14 will be insufficient to cover it, it said.  As a result, the rupee will, on an average, be 12-14% weaker in 2013-14 compared to the previous year. 

 

Third quarter of this fiscal could see high volatility in the rupee if the US Fed begins to taper out its

quantitative easing programme as scheduled, CRISIL said  but it added that the rupee could start seeing some recovery around the same time if the current account starts correcting and capital inflows begin to rise as a result of borrowings by public sector companies abroad and improvement in non-resident Indian (NRI) deposits.