Weakness in rupee likely to stay

Experts believe it is only a matter of time before the currency touches the 64-65 mark

The rupee appears to compensate its earlier outperformance by depreciating 2.8 per cent against the dollar since the beginning of November. On Tuesday, the currency plunged to a 13-month low, touching 63.59 to the dollar in intra-day trade, though it has recovered some ground and closed at 63.11 on Thursday.

While the Reserve Bank of India’s (RBI’s) intervention prevented further slide, many feel it is only a matter of time before the currency touches 64-65.

“CARE expects it to hover between Rs 64-65 a dollar in the coming days, until there is intervention from RBI and the global situation returns to normalcy,” Madan Sabnavis, chief economist, CARE, said in a note to clients.

However, the rupee is not alone in its slide.

Major currencies are showing similar trends and depreciating against the greenback since early November. The euro has depreciated by 1.4 per cent, the yen by 4.1 per cent and the rouble by 40.4 per cent between November 3 and December 18. BRIC economies are also experiencing weakness in their currencies — the Brazilian real has depreciated by 7.2 per cent while the yuan fell by 1.6 per cent.

Experts believe the dollar will continue to remain strong, as it is one of the few regions that is expected to grow in 2015.

Slower growth in exports and increasing non-oil imports, particularly gold, have widened trade deficit to $100.6 billion between April and November from $97 billion in the corresponding period last year.

The country's trade deficit for November jumped to an 18-month high of $16.9 billion. The cumulative net foreign institutional investor (FII) flow has also moderated, particularly in the equity segment. Also, hopes of RBI reducing rates have gained ground that might prompt FIIs to pull out capital from India.

In the past, the Indian currency has shown a tendency to fall below the previous low in each successive round of volatility.

“We expect RBI to mount a full-barreled defense to anchor expectations, at Rs 65 per dollar, selling, say up to $20 billion, if need be... (RBI) Governor (Raghuram) Rajan will not want to take chances with rupee expectations beyond Rs 65 per dollar,” Indranil Sen Gupta, India economist at Bank of America Merrill Lynch, said in a note.

Many other experts believe the rupee could finally settle between 64-65 a dollar in the near term.