Rupee Slips in First Week of November
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