Re To Stay In 38.5-40 Band

I think the rupee should stabilise around 38.5 and 40.0 (per dollar)...somewhere between that, P H Pai Panandikar, advisor to the RPG group of companies told Reuters.

Panandikar was replying to questions on the current political crisis and its impact on financial markets. I think it is affecting (markets) quite adversely. The impact has been very bad and as a result FIIs have been pulling out.

In fact for the first time, in the month of November, there has been a net disinvestment by the FIIs, Panandikar said.

Capital market regulator Securities and Exchange Board of India said on Tuesday that net foreign portfolio investments fell by $65.7 million between November 1 and 21. This will also have an impact on the currency market because the FIIs will be taking back dollars and creating greater demand for the U.S. currency, Panandikar said.

 

I think this is the basic reason why the rupee has been falling along with the fall in share prices, he swaid.

The rupee has fallen around 7.0 percent since mid-August and hit a record low of 38.55 per dollar on Monday. It was quoted 38.335/360 per dollar in noon trade Tuesday. I think the rupee was in fact overvalued, Panandikar said. In the last one year, the rupee-dollar (rate) has been absolutely stable at around 35.70, he said.

But in last 12 months the deutschemark has depreciated in dollar terms along with the French franc and the Japanese yen and it is with these countries that we are doing quite a lot of foreign trade. Panandikar said this had led to a feeling the rupee was overvalued by around 3-4 per cent. But now with the crisis in south east Asia our competitiors in the international market have their currencies down and our exports will face very severe comeptition, he said.

So taking these factors into consideration, I think the rupee should stabilise around 38.5 and 40, Panandikar said.