RBI MAY LET RUPEE SLIDE FURTHER; 76.30/50 levels by Dec end

The Reserve Bank of India may let the rupee slide further against the US dollar as a weaker currency could help exports with the government pushing manufacturing with special incentives. A weaker currency also means improvement in the central bank’s finance.

The local currency is likely to touch the 76.30/50-level by the end December if the US Federal Reserve accelerates unwinding of bond purchases, analysts said. The likely widening of the negative interest rate would add further pressure on the currency.

About 20 central banks including the Federal Reserve are scheduled to meet this week to review policy rates. The Fed is expected to raise its pace of asset buying to $25-30 billion from $15 billion in November While it may leave the policy rate unchanged at the last rate review for the year. Central Bank of the Eurozone, Japan, the Philippines, Taiwan, and Indonesia are also likely to hold rates at the same level.

The rupee closed Monday at 75.77 per dollar, unchanged from previous close. The local currency fell 0.8% last week against the dollar, adding to the 1.3% fall in the preceding two weeks.

The market is pricing in faster taper and an overly hawkish statement from the Fed is pricing in faster taper and an overly hawkish statement from the Fed is hinting at rate hikes next year, said Ananda Banerjee, vice president at Kotak Securities.

“If the Fed delivers on these then the rupee can test 76.30 levels by end of December. RBI will not mind a slide to 76.50 as that’s within the range seen in the last two years, “he said.

To be sure, traders would watch out for RBI interventions at higher levels. “If the pace of intervention is slow, then carry trade unwinding can take the rupee to wards 77 levels, “Kotak Securities said last week. On the way down, the Key level to watch is going to be 75.35/40. As long as the rupee is holding above that zone, bias remains upward it said.

“The rupee is clearly looking weak. Foreign portfolio investors have withdrawn over Rs80000 crore from the local markets in the last two months,” said Harsher Krishnamurthy, a global markets expert. “Secondly some very large sellouts are happening in the IPOs by original foreign investors. Also, the trade deficit is $15 billion per months on average So despite large reserves, the rupee looks to weaken further, “he said.

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