Rupee looks up but not out of the woods yet

 

The rupee’s brief flirtation with sub-61 to a dollar level on Friday rekindled the debate about whether the worst was over for the Indian currency.

From the being the worst-performing currency between May and August, the rupee has  made a smart rebound since the beginning of last month, aided by a host of internal and external factors.
 A dovish US Federal Reserve that postponed “tapering” of its easy money policy and a raft of measures taken by Reserve Bank of India such as restricting gold imports attracting foreign currency non-resident (FCNR) funds and tightening the monetary policy have helped the rupee.

The biggest impact, however, has been from RBI’s decision to allow oil companies to buy dollars through a special window. This has reduced the daily demand of up to $500 million in daily spot markets, aiding the rupee sharp recovery.
While it may be tempting to conclude that the bottom may not be far away for the battered rupee, analysts cautioned that global and domestic events over the the next couple of months will have to bring in fairly good numbers for the volatility to reduce.
“Linked to fiscal challenges is India’s dependence on oil imports. A $10 per barrel rise in oil prices increases the domestic fuel subsidy by $5.8 billion (0.3% of GDP), assuming local fuel prices are unchanged,” investment banking major Morgan Stanley said.




new delhi: The rupee’s brief flirtation with sub-61 to a dollar level on Friday rekindled the debate about whether the worst was over for the Indian currency.
The biggest impact, however, has been from RBI’s decision to allow oil companies to buy dollars through a special window. This has reduced the daily demand of up to $500 million in daily spot markets, aiding the rupee sharp recovery.
While it may be tempting to conclude that the bottom may not be far away for the battered rupee, analysts cautioned that global and domestic events over the the next couple of months will have to bring in fairly good numbers for the volatility to reduce.
“Linked to fiscal challenges is India’s dependence on oil imports. A $10 per barrel rise in oil prices increases the domestic fuel subsidy by $5.8 billion (0.3% of GDP), assuming local fuel prices are unchanged,” investment banking major Morgan Stanley said.

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