Lack of a concrete plan to tackle India’s burgeoning current account deficit and a rally in the dollar globally aided by upbeat economic data are expected to put pressure on the rupee in coming days.
Globally, the euro sank to a 2-1/2-month low before quickly rebounding, while increased speculation the new leadership of the Bank of Japan will move quickly to loosen monetary policy sent the yen reeling.
Sterling collapsed to a fresh 2-1/2-year nadir on disappointing economic data, briefly dropping below the $1.50 level.
Last week, the rupee fell 1.3% against the dollar with most of the depreciation on the Budget day. It ended the week at `54.91 per dollar, its lowest since January 9, according to Bloomberg.
According to Goldman Sachs, the rupee may fall to Rs55 per dollar in next three months before reclaiming Rs53 per dollar levels in six months and `52 per dollar levels in a year.
Tushar Poddar, managing director and chief India economist at Goldman Sachs said there is depreciation pressure for the rupee in the near term.
The Budget lacked any structural reforms that may help shield rupee from any global shocks. Ritika Mankar Mukherjee, analyst at Ambit Capital, points out that while fiscal deficit and policy inaction risks have mitigated appreciably over the past eight months, external account risks persist. She adds that India is exposed to currency risk over the next 12 months.
Rupee lost 8% against the dollar so far this financial year, though the journey was less volatile towards the end. The currency registered an all-time low of Rs57.16 per dollar in June 2012 and then recovered to Rs53-54 per dollar levels from December.
The Budget also failed to impress international ratings agency Standard & Poor’s that stays firm on the negative outlook for India. The ‘junk’ investment status is still just a step away and is negative for the currency.
“There is little progress in structural reforms to reduce the vulnerability of the government’s fiscal position,” said S&P in a note. The ratings agency said that India is still vulnerable to spikes in oil and other commodity prices.
According to Sonal Varma, economist at Nomura, slippage in the budgeted fiscal deficit target of 4.8% may be unavoidable, which could raise concerns about sovereign rating downgrade.“If this materialises, such a scenario would be rupee negative,” said Varma. With agencies