1. Rupee Regains Ground, Closes at 59.39 against Dollar
Indian rupee gained 1.2% in the day, its most in nine months against the dollar on inflows,
limited demand for dollars from oil companies and expectation that the US Federal Reserve may
not be able to reverse quantitative easing programme anytime soon.
“In the medium to long run, the rupee may stabilise on expected flows,” said NS Venkatesh,
head, treasury, IDBI Bank. “The impact of the restrictions on gold import and steps taken by the
government to tackle policy issues in the power sector will all help the sentiment in favour of a
stronger rupee. We expect the rupee to trade in the range of 57.50- 58.50 per dollar by July end,”
he added. On Friday, the rupee closed at 59.39 a dollar, 1.2% or 74 paise, stronger from its
previous close. The rupee touched an all-time low of 60.73 a dollar on Tuesday, having lost more
than 10% since May this year, on fund outflows. Foreign investors have pulled out over $5
billion from Indian debt this month. This fund ouflow was triggered by Fed chairman Ben
Bernanke’s comments that the Fed may go slow on bond purchases or its quantitative easing
programme, which has so far fuelled the rush of capital flows into riskier assets from emerging
countries. But currency dealers do not expect the quantitative easing to taper off anytime soon,
given the weak fundamentals in US economy and that raising interest rates may stall the process
of US recovery. “The markets have been rattled by Fed’s comments on stopping bond purchases,
but QE 3 may not taper off immediately,” said Mohan Shenoi, head, treasury, Kotak Mahidnra
Bank. “For the US economy to enter into a self-sustaining upward spiral, it has to reach a growth
rate of 2.75% to 3%. However, current economic growth of US is at around 2% this quarter. So,
it appears to us that the US is not yet in a position to enter into such a self-sustaining spiral,” he
said.Shenoi expects the rupee to trade in the range of 58-60 a dollar in the near term.