statesman news service
NEW DELHI, 6 JULY: The rupee would continue to remain volatile and might weaken further against the dollar during the next quarter if downside risks accruing from high current account deficit and dwindling of FDI flows remain unresolved, according to the ‘Survey on Variation of the Indian Rupee’, conducted by the Confederation of Indian Industry which captures the industry expectations on the movement of the rupee against the dollar in the near term.
The CII survey demonstrated a subdued outlook of the rupee with most respondents (around 56 per cent) expecting the rupee to trade above the Rs 59 a dollar mark by end-September.
Another 15 per cent of the respondents expect the currency to remain in the vicinity of Rs 58-59 to a dollar as weak sentiments would continue to drive down the rupee.
Around 22 per cent displayed cautious optimism with the rupee rising marginally to 57-58 to a dollar while only seven per cent of the respondents expect it to bounce back to Rs 56-57 to a dollar range by September-end.
None of the respondents expected the rupee to move up beyond the 56-57 range in the coming quarter.
Commenting on the survey, Mr Chandrajit Banerjee, director-general, CII, said: “The large current account deficit and our growing vulnerabilities on the external front have largely contributed towards the secular decline and the current volatility of the rupee.”
Mr Banerjee said: “We need to move fast on the next round of reforms by addressing constraints such as land acquisition and environment which delay investments in industry and infrastructure, encourage foreign direct investment by easing of investment caps, continue rollback of fuel and fertiliser subsidies, strengthen energy security and reduce transactions costs of exports. We need to tackle the bottlenecks which constrain investment and growth and make India an attractive business destination for both domestic and foreign investors to prevent excessive volatility and downward pressure on the rupee.”
The majority of the respondents have cited high current account deficit and burgeoning gold imports as the main reason for the recent downslide of the rupee followed by expectations of tapering of QE (quantitative easing) by the US Federal Reserve.
Other reasons such as weak domestic sentiments, rising demand for dollars by importers, among others also matter but their significance is much less.
The survey was unanimous about the adverse impact of the rupee decline on the economy. A majority of respondents reported that the weak rupee would contribute towards imported inflation due to a rise in the oil import bill and its consequent impact on the Wholesale Price Index. This may discourage the central bank from cutting the policy rates in the next monetary policy review.