Rupee seen less volatile in 2014

Rupee should range between Rs 61 to Rs 64 per dollar in 2014, says president - group treasury and global markets, Kotak Mahindra Bank

The volatility in the rupee is expected to be much lesser in 2014 due to factors such as fall in the current account deficit (CAD), rebound in economic growth and expected flows by foreign investors into the domestic market.

The rupee had ended at 54.69 against the dollar on January 1, 2013. The currency touched an all-time low of 68.85 on August 28 this year due to heavy dollar demand from importers. In the past few months, the rupee recovered primarily due to efforts by the Reserve Bank of India (RBI).

Despite these measures, the rupee depreciated by 12.45 per cent since December 31, 2012, when it ended at 55.

“The rupee will not be that much volatile as it was in 2013 but there might be bouts of volatility when the actual tapering by the US Fed starts. The rupee may trade anywhere between 61.50 and 63 in the new year. Exports are picking up, imports have been compressed, the CAD is coming under control. Besides that, growth will rebound and inflation will come off. These factors will help the rupee,” said N S Venkatesh, chief general manager and head of treasury at IDBI Bank and chairman of Fixed Income Money Market and Derivatives Association of India.

On Friday, the currency ended at 61.85 against the greenback, up from the previous close of 62.16. Last week, the US Fed said it would reduce its monthly purchase of assets by $10 billion, reducing it down to $75 billion.

CAD for the second quarter of the current financial year ending September 30 declined to $5.2 billion, or 1.2 per cent of gross domestic product (GDP), compared with $21 billion recorded in the corresponding quarter of the previous year.

Mohan Shenoi, president (group treasury and global markets) at Kotak Mahindra Bank, said: “Broadly, the rupee should range between 61 and 64 per dollar in 2014. If the rupee strengthens over 61 per dollar, then RBI will start buying dollars. I also do not see the rupee weakening over 64 to a dollar because the CAD has come down significantly and the US Fed’s taper has not resulted in too much of outflows from the emerging markets.”  Adding, “RBI Governor Raghuram Rajan has created a lot of confidence among overseas investors, due to which they are quite happy with the kind of returns they are getting from our domestic markets.”