RE CLIMBS BACK TO 55 LEVEL; GAINS 44P VS USD IN FIRST 5 DAYS OF JUNE

Ushering in June on a positive note, the rupee took some baby steps towards recovery in first five days of the month with gains of 44 paise against the US dollar. The local unit, which had closed at 56.08 against the dollar on May 31, the last trading day of previous month, closed at 55.64 on June 5. Starting the sixth month of 2012 on a strong note, the domestic currency gained a whopping 54 paise on June 1 to end at 55.54 against the dollar on persistent dollar-selling by exporters. On the same day, the Reserve Bank hinted at opening a separate dollar window for oil companies as a measure to contain dollar demand and help support the rupee. “The option (of opening a separate dollar window for oil companies) is open. Whether they (RBI) are doing it or not, I don’t know, because it will not be done in the public view,” RBI Deputy Governor K C Chakrabarty had said. However, rupee erased all gains in the beginning of the second week on June 4 and plunged by 11 paise to close at 55.65 against the US currency but gained a paise to close at 55.64 on June 5. According to data from stock exchanges, Foreign Institutional Investors (FIIs) sold stocks worth Rs 637.14 crore on June 4. Meanwhile, RBI has said that it cannot arrest the rupee’s decline if it is caused by weak fundamentals or global factors but can only take more calibrated steps in the forex market in such a scenario. “If the rupee fall is due to fundamental weakness of the economy, or due to global factors, then the RBI cannot support it,” RBI Deputy Governor K C Chakrabarty said on June 1 on the sidelines of an HR summit of the state-run banks in Mumbai. “The government must address trade deficit issues if the fall of the rupee is due to weak fundamentals,” he added. “If the rupee is depreciating due to real sector issues, financial sector measures will not solve it,” Chakrabarty had said.

IMPACT

The rupee’s slide against the dollar may bring short-term gains for the Indian IT industry but it will have to be content with a modest 10-14 per cent growth, according to industry leaders. Its main consumer, the banking and financial services industry, is yet to recover fully after the 2008 global meltdown. “You cannot expect the industry to grow at the same pace as it did in the 2004 boom time,” Sid Pai, managing director, ISG, a consulting and IT services firm, was quoted as saying by a media report. “Any such expectations would be unrealistic,” he said. As the rupee continues to slide against the dollar, hopes are rising in the Indian IT sector that the greenback may save the sector in the near term at least. But industry experts are not banking on this too much.