Rupee gains limited as traders buy dollar after holidays

Neelasri Barman

This week may not be a good bet towards the appreciation of the rupee against the dollar as traders are expected to buy dollar after a series of holidays for the New Year.

In fact, January is expected to be volatile as traders await the outcome of the Reserve Bank of India’s monetary policy to be held later this month.

“A certain amount of Reserve Bank of India action is expected to impact the rupee-dollar movement. As a result the market will be volatile,” said Nirav Dalal,
country head and executive vice president (debt and capital markets) at Yes Bank.

The Indian currency ended weaker on Friday at Rs 46.61 per dollar compared with Thursday’s close of Rs 46.52 supported by overnight gains in the dollar against other major currencies worldwide.

“In the coming week the rupee may trade in the range of Rs 46.50 to Rs 46.70 against the dollar,” said Gopal Sharma, advisor to Transcorp International.
It also cannot be said that 2010 will be a year when the rupee may strengthen or weaken significantly against the greenback. “Going forward the rupee will be volatile,” said Dharmakeerti Joshi, principal economist at rating agency Crisil.

According to economists, the factors which will trigger depreciation in the Indian currency are gradually gaining strength.

“Oil prices may breach $100 per barrel soon and this will increase India’s oil import bills,” said Rupa Rege Nitsure, chief economist at Bank of Baroda.

At the New York Mercantile Exchange crude oil is currently quoting at dollar 79.36 per barrel. India’s economic activity is also picking up strongly as a result of which the non-oil imports will also go up, she said.

But a recovery in exports is expected to be gradual and this will be backed by mixed economic data on the global front.

“India’s trade deficit is expected to widen by a sizeable amount in the next fiscal year,” warns Nitsure.

Though India is set to attract good capital inflows and this may put pressure on the dollar. But the gain in rupee seems to be limited.

“The rupee may end this fiscal year at Rs 47 per dollar,” said Nitsure.