Eefc Inflows Unlikely To Curb Rupee Volatility

The deadline for bringing back the proceeds expires on August 23.

"The inflow will not be able to push the rupee lower than 45.70-45.75 level in the short run. But import demand can weaken the rupee further in the medium term and it can even cross the 46 level," a dealer with a foreign bank said.

The success of RBI's measure will depend to a great extent on the movements in the stock market. UTI chairman PS Subramanyam said: "The stock market will drive the rupee". "If the Sensex strengthens, FIIs are bound to return to the market and that will improve the situation in the forex market," a dealer pointed out.

As some large corporates have started making forward import contracts, dealers expect not much of net dollar inflows even after the recent move of the RBI. "The net inflows will be within $200-300 million", said a dealer with a private sector bank.

The inflows have been very low even after the issuance of the directive. "Most banks have not directed their customers to bring back their EEFC balances as yet," said a dealer with a foreign bank. "The inflow is expected to start over the next few days and that will certainly strengthen rupee a bit," said a dealer with a foreign bank. "However, the picture will be clear only on August 22, the day before the deadline expires," he added.

However, there has been unanimity among the dealers that net inflows will be much lower than the expected amount ($1 billion).

Dealers feel the move will not be able to have a steady impact on the forex market as there is genuine import demand from corporates and the forex market can be cooled down only if the central bank starts directly intervening by selling dollars in large quantums.