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Rupee may depreciate further: CII Survey

08 Jul 2013 Evaluate

A survey conducted by Confederation of Indian Industry (CII) expects the rupee to remain volatile and perhaps even depreciate further if the government fails to tackle issues like dwindling FDI flow and high current account deficit (CAD).  Majority of the respondents in the survey, conducted among the chamber's economic policy members, expected the rupee to trade above 59 to a dollar by end of September.

The survey underscored that the government needs to accelerate next round of reforms by addressing constraints such as land acquisition and environment, which delay investments in industry and infrastructure. It also highlighted the need of easing curbs on foreign institutional investors (FIIs) and external commercial borrowing (ECB) by the government.

Large current account deficit (CAD) and growing vulnerabilities on the external front have largely contributed towards the secular decline and the current volatility of the rupee. Worryingly, the Indian currency has depreciated 9.8 per cent to 60.24 against a dollar since the start of 2013. The majority of respondents have cited the high CAD and burgeoning gold imports as the top reason for the rupee's recent slide, followed by expectations of tapering of its quantitative easing programme by the US Federal Reserve. While weak domestic sentiment and rising demand for dollars by importers, too have been blamed.

Further, the respondents were unanimous about the adverse impact of the rupee's decline on the economy. A majority were of the view that weak rupee would contribute towards imported inflation, due to a rise in the oil import bill, largely turning out to be a factor which would continue discouraging the central bank from cutting policy rates in the next monetary policy review. India’s Apex Bank, in its monetary policy review on June 17 kept its key rates unchanged and warned about the upward risks to inflation, posed by a falling rupee among other factor.

However, opinion remained at odds about RBI intervention to stem the slide. While, the majority of the respondents (53 per cent) felt RBI should not intervene in the foreign exchange market to arrest the fall, the others supported such intervention.

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