Rupee-dollar forecast: The currency's past and present state
The forecasts on the Indian rupee a few months ago, and its current state, probably reinforce the Nobel Laureate’s theory.
Bank of America Merrill Lynch: May 16, 2013
Bank of America Merrill Lynch Goldman Sachs Barclays Our forex strategists see the rupee at Rs52.50/USD as at end-June… We hold the contrarian view that any withdrawal of Fed easing — not our house view — will actually be positive for India. First, the RBI can continue to cut rates to attract capital inflows as it is currently running a differential of high 700bp with the Fed funds rate. Second, the INR typically benefits from Fed hikes as they signal a re-affirmation of growth and lead to risk taking into emerging markets.
Looking forward, we believe India’s fundamentals appear somewhat better due to easing inflation pressures, and growth having bottomed out. We find that historically improving growth tends to lead to INR strength, as does a fall in inflation. Therefore, we think that the depreciation pressures on the INR are lessening. While there remain near-term concerns due to an elevated trade deficit, especially if we were to get a bout of global risk aversion, beyond 3 months, we see appreciation pressures due to improving fundamentals. Our 3, 6, and 12-month USD/INR targets remain at 55, 53, and 52 respectively.
Barclays: May 9, 2013
In India, our economists think that inflation and sluggish (by its own performance) economic activity data will justify further monetary easing in coming months – an INR positive to the extent that such moves can encourage portfolio inflows and as post-cut interest rate levels would still be high compared with EM peers. A lower gold price is likely supportive of the INR. Gold is one of India’s major commodity imports and lower prices would likely help to narrow the current account deficit and reduce pressure on India to attract portfolio inflows.
Arvind Mayaram, Department of Economic Affairs, September 30, 2012
If rupee further strengthens, which we hope it will with the steps the government is taking, we expect it could even touch 50 in the next 2-3 months or four months. Now there is a much better foreign exchange management in terms of flows on account of decisions that the government has taken in the past 2-3 weeks. We expect higher FDI flows to come into the country. So, the pressure on the rupee is decreasing to that extent.
Raghuram Rajan, Chief economic adviser in the finance ministry, May 2013
We are not the worst, but we are also not the best either in terms of depreciation...I won’t say it is out of sync with what is happening in other countries...There is no panic based need for new measures (on rupee)...I don’t see any reason for apprehension.
P Chidambaram, Finance minister in October 2012
The rupee is stabilising … I don’t make the market… We take decisions that are necessary to be taken. How the market will react, we will know when the market opens tomorrow.
On June 6, 2013
There is no cause for alarm on the Indian rupee and capital flows were strong. I think the rupee will stabilise and find its correct level.