Ru­pee Slips in First Week of Novem­ber

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S tabil­is­ing sub­stan­tially in Oc­to­ber af­ter plung­ing to record lows in pre­vi­ous months, the ru­pee seems to be again some­what slip­ping against the US dol­lar in the penul­ti­mate month of 2013. The do­mes­tic cur­rency has al­ready fallen by 2.9 per cent in the first 11 days of Novem­ber to 63.24 ver­sus the Green­back, com­pared to 61.50 on Oc­to­ber 31. Sus­tained cap­i­tal in­flows, which have touched a record Rs 91,892 crore in 2013 (till Novem­ber 8) so far, have not been able to stem the ru­pee’s de­cline, forex deal­ers say. In­dia’s gold and sil­ver im­ports in­creased to USD 1.3 bil­lion in Oc­to­ber from USD 0.8 bil­lion in Septem­ber even as ex­ports grew at the fastest rate since Septem­ber 2011. The trade deficit widened to USD 10.5 bil­lion from USD 6.76 bil­lion in Septem­ber, which in turn is hit­ting the ru­pee. “Over­all, global de­mand is im­prov­ing, but higher im­ports (of oil, gold and oth­ers) have led to the de­te­ri­o­ra­tion in the trade deficit. The rise in im­ports is due to sea­son­al­ity, as im­ports tend to rise ahead of the fes­ti­val sea­son,” Sonal Varma of No­mura said. How­ever, the govern­ment seems op­ti­mistic with Fi­nance Min­is­ter P Chi­dambaram be­ing con­fi­dent that the “ru­pee will set­tle down.” Ru­pee led losses in Asian currencies in the first week of the month ended Novem­ber 8 as over­seas in­vestors cut hold­ings of the re­gion’s stocks on spec­u­la­tion US pol­i­cy­mak­ers would cut stim­u­lus this year. Third-quar­ter US ex­pan­sion topped es­ti­mates and growth in ser­vice in­dus­tries ac­cel­er­ated last month, data showed this week. “Asian currencies de­clined this week as mar­kets think the Fed will scale back its stim­u­lus ear­lier than ex­pected,” said Leong Sook Mei, South­east Asian head of global mar­kets re­search in Sin­ga­pore at Bank of Tokyo-Mit­subishi UFJ Ltd. The ru­pee fell to a record low of 68.85 against the dol­lar on Au­gust 28. Ex­perts say for the short term, the ru­pee could trade in a side­ways range be­tween 61 and 63. Within this range, there are good chances of the ru­pee weak­en­ing to 63 in the com­ing days. In­ter­me­di­ate sup­port for the ru­pee is seen at 62. A break­out on ei­ther side of the 61-63 range will set the trend there­after. The medium-term view for the ru­pee is bullish. This view will be negated only if the cur­rency breaches the key medium-term sup­port be­tween 63 and 64. The cur­rency is likely to drift up­wards to­wards 60-59 over this time pe­riod. HSBC’s man­u­fac­tur­ing Pur­chas­ing Man­agers In­dex (PMI) for Oc­to­ber stood at 49.6, un­changed from Septem­ber, in­di­cat­ing con­trac­tion in ac­tiv­i­ties as it is be­low 50. This is the third con­sec­u­tive month of con­trac­tion in the PMI. HSBC’s chief econ­o­mist for In­dia and Asean, Leif Eske­sen said: “In­put price in­fla­tion ac­cel­er­ated fur­ther de­spite the weak growth back­drop, as the ef­fects of the de­pre­ci­ated ex­change rate con­tinue to pass through.” No­mura said the in­put price in­dex in Oc­to­ber rose to a 16-month high of 64.5 from 63.5 in Septem­ber, con­tin­u­ing the steep up­trend of the last four to five months. The ru­pee also had ap­pre­ci­ated over the past two months, yet the con­tin­ued rise in in­put costs sug­gested broader cost pres­sures, the re­port said. The out­put price in­dex rose to 55.3 from 51.1, sug­gest­ing that firms have started to pass higher in­put costs on to con­sumers to pro­tect mar­gins, the re­port said. No­mura said with the man­u­fac­tur­ing PMI av­er­ag­ing at 49.4 in Q3, the Oc­to­ber data sug­gested that Q4 was also start­ing on a weaker note. Mean­while, the Re­serve Bank said it had re­ceived USD 15.2 bil­lion so far from the spe­cial swap win­dows opened to at­tract FCNR-B de­posits as well the spe­cial ECB win­dow fa­cil­ity for banks. “As of Novem­ber 6, we have re­ceived USD 15.2 bil­lion un­der the spe­cial con­ces­sional win­dow for swap­ping for­eign cur­rency non­res­i­dent (banks) (FCNR-B) de­posits and over­seas for­eign cur­rency bor­row­ings for banks,” RBI said in a state­ment. These win­dows will re­main open till the end of this month, and many an­a­lysts have pegged the in­flows from these in­stru­ments to be in the range of USD 20-25 bil­lion. The Re­serve Bank had an­nounced these schemes on Septem­ber 4, the day new Gov­er­nor Raghu­ram Ra­jan took over to con­tain the flight of the ru­pee.

Fi­nance Min­is­ter P Chi­dambaram

Sonal Varma of No­mura

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