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Five reasons why rupee is depreciating despite strong FII flows

May 24, 2013, 10.08AM IST

Tags: US Federal reserve| US dollar| Rupee| investments| Inflation| Indian rupee| indian economy| Government Of India| Gold| global economy| forex| fiscal deficit| Federal Reserve| European Central Bank| equities| economy| CAD| balance of payments

(The record setting performance)

By Abhishek Goenka NEW DELHI: The rupee has plunged by around 2% in just a week. Ironically, during the same period, markets saw inflows of up to $2.4 billion. This brings us to the riddle what is driving the rupee lower to nearly its 8 1/2-month low?

Also, going forward, it appears that the losses will extend. In the absence of any major news from the domestic markets, international forces will likely drive the path of the rupee.
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Let's have a look at the five major reasons behind the rupee's weakness: Dollar On A Horse Ride The main reason causing the rupee to fall is the immense strength of the Dollar Index, which has touched its three-year high level of 84.30. The record setting performance of US equities and the improvement in the labor market has made Americans more optimistic about the outlook for the US economy, thereby spurring greater hopes of QE tapering. The US dollar is looking like gold these days because the Federal Reserve is in a very different position versus the ECB, BoJ and the RBA. The Federal Reserve is talking about tapering asset purchases at a time when European officials are considering more aggressive monetary easing measures such as negative deposit rates. The fact that the Euro zone is in a recession is just another reason why investors are snapping up dollars. The monetary policies of the ECB and the BoJ pose a threat to the value of the EUR and JPY whereas the next move by the Fed should support the dollar. This divergence is bringing the dollar more into the limelight as a 'safe haven'. Capital preservation is just as important as capital appreciation in the present times and for this reason the direction of the monetary policy and the consequent implications for the currency has become very important. Recession in the Euro Zone Is Back On the Table The rupee is also feeling the pinch of the recession in the Euro zone. The euro, which was seen holding the key level of 1.30, has dropped lower to 1.28 levels on the back of deterioration in the local economic data. For the past month, investors have been selling Euros and buying dollars on the premise that the Euro zone is in a recession; and the ECB is considering more stimulus at a time when the Fed is considering less. If the data shows a deeper contraction in Europe and Mr. Draghi reminds investors that the Central bank is watching the economic data carefully to see if additional action is necessary, the EUR/USD could extend its losses. Owing to the uncertainty prevailing in Europe and the slump in the international markets, investors prefer to stay away from risky investments. The credit rating agency's downgrade of India to BBB- with a negative outlook the last of the investment grade has not helped its cause. Any outward flow of currency or a decrease in investments will put a downward pressure on the rupee exchange rate. This global uncertainty has adversely impacted the domestic factors and could lead to a further depreciation of the rupee. Bleak Fundamental Outlook The country with high exports will be happier with a depreciating currency; the same does not apply for India. India, on the other hand, does not enjoy this luxury, mainly because of increasing demand for oil, which constitutes a major portion of its import basket. The fall of the oil price to US$90/barrel has helped India to fight the depreciating rupee up to some extent but at the same time the Euro zone, one of India's major trading partners is under a severe economic crisis. This has significantly impacted Indian exports

because of reduced demand. Thus India continues to record a current account deficit of around 4.3%, depleting its Forex reserves in the bargain and thus depreciating the rupee.
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From time to time, the macro-economic policy has to accord greater emphasis to one segment or the other. At the present time the worry lines are multiple high consumer price inflation, a large fiscal deficit, poor growth, flat industrial production and a balance of payments current account deficit.

No Balance at Balance Of Payments The Government of India was relaxed with respect to the CAD issue as there was a sharp fall in the commodity prices (of gold and crude oil). A large part of the import bill is driven by other resources as well. The facts show that fertilizer imports surged by 30% in the last two years and coal imports have doubled. Therefore, the problem of CAD continues to persist. The Indian economy needs to debug its structural reforms and the gap between the imports and exports. With the reduction in exports and an increase in imports, on one side the current account deficit has increased while on the other, the fiscal deficit is also expected to be above the comfort levels due to increased subsidy. A slowdown in the global economy has adversely reduced the demand for Indian goods. The falling commodity prices on the other hand have increased imports resulting in an imbalance between payments and receipts. Technically Speaking We note a recent interesting inverse 'Head & Shoulder' pattern on the USDINR chart where the prices are close to the neckline of 55.40 and were seen facing resistance. In case this pattern holds true and the prices break above 55.40 on a consistent note (say for two weeks), then we might see a wild move in the Indian rupee going forward and we can easily target 57-58 levels. Even psychologically, the levels of 55 are seen as important. The breakout above these levels has triggered stop losses making the investors cover their long positions resulting in further increasing the demand for the dollar. (The writer is Founder & CEO, India Forex Advisors. The views expressed are his own and do not represent those of Economictimes.com)

Rupee's journey since Independence: Down by 65 times against dollar

Aug 24, 2013, 01.54PM IST

Tags: US Federal reserve| united states| stocks| Rupee| P Chidambaram| markets| Inflation| Independence| Finance minister| Federal Reserve| equities| economy

(The rupee depreciation)

SMC Capital The Indian rupee, which was on a par with the American currency at the time of Independence in 1947, has depreciated by a little more than 65 times against the greenback in the past 66 years. The rupee touched its historic record low of below 65 (intraday) against the dollar last week on sluggish local stocks and continued dollar demand from importers.
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The currency has witnessed huge volatility in the past two years. This volatility became severe in the past three months affecting major macro-economic data, including growth, inflation, trade and investment. Managing volatility in the currency markets has become a big challenge for policymakers. Despite of a series of measures taken by the central bank as well as the government to curb the volatility in the markets, the rupee continues to depreciate. The trend is unlikely to reverse any time soon.

This rupee depreciation is badly hurting the Indian economy. It is fuelling inflation and has hurt economic growth. JOURNEY SINCE INDEPENDENCE The Indian currency has witnessed a slippery journey since Independence. Many geopolitical and economic developments have affected its movement in the last 66 years. When India got freedom on August 15, 1947, the value of the rupee was on a par with the American dollar. There were no foreign borrowings on India's balance sheet. To finance welfare and development activities, especially with the introduction of the Five-Year Plan in 1951, the government started external borrowings. This required the devaluation of the rupee. After independence, India had chosen to adopt a fixed rate currency regime. The rupee was pegged at 4.79 against a dollar between 1948 and 1966. Two consecutive wars, one with China in 1962 and another one with Pakistan in 1965; resulted in a huge deficit on India's budget, forcing the government to devalue the currency to 7.57 against the dollar. The rupee's link with the British currency was broken in 1971 and it was linked directly to the US dollar. In 1975, value of the Indian rupee was pegged at 8.39 against a dollar. In 1985, it was further devalued to 12 against a dollar. In 1991, India faced a serious balance of payment crisis and was forced to sharply devalue its currency. The country was in the grip of high inflation, low growth and the foreign reserves were not even worth to meet three weeks of imports. Under these situations, the currency was devalued to 17.90 against a dollar. 1993 was very important. This year currency was let free to flow with the market sentiments. The exchange rate was freed to be determined by the market, with provisions of intervention by the central bank under the situation of extreme volatility. This year, the currency was devalued to 31.37 against a dollar. The rupee traded in the range of 40-50 between 2000 and 2010. It was mostly at around 45 against a dollar. It touched a high of 39 in 2007. The Indian currency has gradually depreciated since the global 2008 economic crisis. Liberalising the currency regime led to a sharp jump in foreign investment inflows and boosted the economic growth
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PRESENT SCENARIO

In the week gone by, the Indian rupee extended falls to a new low of 65.50 to the dollar as heavy demand from importers along with weak domestic equities continued to weigh on sentiment. Weakness was also seen after Federal Reserve minutes hinted that the United States was on course to begin tapering stimulus as early as next month. Moreover, continuing its slide, the rupee also made all time low against British pound and breached the 102-mark on local bourses. With this, British pound has become the first major foreign currency to cross 100 levels against rupee. However, steps taken by the RBI and the government to curb volatility in the exchange rate have had little effect so far. The government is now exploring structural measures to narrow the current account deficit, Finance Minister P Chidambaram said, adding that there is no plan to introduce capital controls.

Standard Chartered cuts rupee forecast to 60.5/dollar for end of year

ECONOMICTIMES.COM Jun 24, 2013, 12.42PM IST

Tags: US dollar| standard chartered| Rupee

(Standard Chartered cut)

MUMBAI: The Standard Chartered is of the view that the fall in rupee against the US dollar is not done yet and some more downside is in the offing. It expects the rupee to breach the resistance of 60 per dollar mark and fall 60.5 per dollar by the year-end.
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According to the brokerage, until now Indian equities experienced modest outflows, supported by broadly improving fundamentals. But rupee losses pose significant downside risks to positive economic trends and in turn, portfolio flows. India's unstable politics and slow pace of reforms add to the downside risks. "We expect USD-INR to extend gains in the near future and revise our forecasts higher. Central to this view are (1) continued US dollar (USD) strength on the back of Fed tapering expectations, (2) the risk of persistent outflows from Indian markets, which is likely to overshadow the initial improvement in trade deficit expected in Q3, and (3) a low probability of strong policy measures to stem Indian rupee (INR) losses," the report said. The brokerage has maintained short-term FX rating of neutral on the rupee and lowered its medium-term rating to neutral from overweight. "USD-INR gains should partially retrace in late Q3, once Fed tapering is priced in, EM rallies broadly and the INR's carry characteristics come back into play. But lingering election risks are likely to prevail, heading into 2014. We now forecast USD-INR to be at 60.5 by the year-end," the report said. StanChart recommends Indian importers to maintain high short-term FX hedge ratios on USD payables. Real-money funds are advised to stay neutral on the rupee relative to benchmark, as forwards already reflect most of the price risk. "This puts the onus on policy makers to boost capital inflows and provide support to the INR. While measures like lower net overnight open position limits (NOOPL) for banks may provide short-term relief, quicker policy reforms are needed to substantially ease upside pressure on USD-INR. This is unlikely ahead of the 2014 general elections," the report added. At 12:00 pm, the partially convertible rupee was at 59.75 per dollar, down 48 paise, against its previous close.

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Rupee hits 65.56/$: Will it head towards 70, or recover?

ECONOMICTIMES.COM Aug 23, 2013, 01.05AM IST

Tags:

US dollar| Touch| Sanjay Dutt| Rupee| interest rate| Indian rupee| Indian currency| forex| foreign capital| economy| dollar| Deutsche Bank| DBS| Credit Agricole| CLSA

(UBS and Deutsche Bank say)

UBS and Deutsche Bank say the Indian currency will fall to 70 against the US dollar, while Nomura does not rule out the possibility. Experts say it were the talks of the US withdrawing the $83-billion bond-buying program that have been weighing on the currency. With no clarity on the easing of the QE, the uncertainty persists.
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What's the road ahead for the rupee? Here's what experts have to say on what is affecting the currency, what the government and the RBI should do to stem its slide, and where the currency is seen against the dollar in the days to come. Enzio von Pfeil, senior advisor at MCL Assets "I think emerging market currencies will continue to plunge, particularly the Indian rupee, because of the stronger US bond yields, making yields much more attractive ... Once the traders of the big banks decide to go long on the emerging markets then you'll find these currencies going through the roof because they are very thinly traded. Anybody taking a six-month view, they should be buying into emerging market currency weakness as opposed to selling into weakness."

Credit Agricole Credit Agricole says it does not see value in the rupee below 70 to a dollar unless foreign capital returns and that it would not recommend buying the rupee for fundamental reasons below 75 to the dollar, as reported by Reuters. "The only long-term solution - deep economic, political and social reforms - is unlikely ahead of the upcoming elections and possibly for years to come," Credit Agricole said in a note dated August 21, adding to the chorus of bearish bets on the rupee. Subir Gokarn, former deputy governor of RBI "The problem is structural because it is essentially stemming from the very large current deficit (CAD). The trigger for this (rupee slide) was of course the Fed QE tapering talks, which changed the pattern of the capital flows largely," says. Ajay Srivastava, CEO at Dimensions Consulting "We should talk about the rupee particularly because the remedies for the rupee and other EM currencies are very different. We are one of the worst in terms of current account deficit; we are one of the worst in terms of fiscal deficit. In other countries, it is more a fallout of what is happening in the global markets. We are a sum of three situations - fiscal irresponsibility, current account situation and then of course what has happened in the global markets. So, we are a product of three other than a product of one." Sanjay Dutt, Quantum Securities "On a very cheap and lighter note, the rupee is behaving like a B Group stock, as what we call in the market, but leaving that aside is not a time for any wise crack. It is very unfortunate that we have been caught in this entire emerging market currency sell-off, but it is something that is really beyond anyone's control, barring some amount of action which the RBI can take. Starting July 15, the RBI has taken action. Unfortunately, there have been flip-flops and doublespeak a lot of time. So, the markets have got confused. The markets hate uncertainty, especially in times like these. Sanity will start to return. We are at extreme panic zone as far as the currency is concerned."
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AV Rajwade of AV Rajwade & Co "Economy is surely bad, but not the fundamentals. We need to remember that the correlation between the speed of price changes in the markets and the fundamentals, there is always a major gap; the correlation is not strong at all. In fact, fundamentals get ignored for a very long time and then once they come into play, it has a major impact." Nomura "In our view, the problem is that the RBI is trying to juggle too many balls, which sends confusing signals and damages its credibility. Interest rate defence of the exchange rate is never a costless strategy, but policymakers are trying to achieve INR stability without sacrificing any growth. Our view remains that the costs of an interest rate defence outweigh the benefits and this strategy will cause greater collateral damage. The inability of authorities to tolerate lower growth shows that this strategy is not sustainable.

Instead of targeting the currency, the policymakers need to devise a credible fiscal consolation plan, implement structural reforms and recapitalise banks to make the financial sector more robust." Deutsche Bank "Fundamentally, the rupee is undervalued and has overshot its equilibrium level substantially. Under a scenario of deep pessimism, currencies can overshoot substantially and remain so for a long time. India, we fear, is entering such a zone. We now believe that the rupee could touch 70 to the USD in a month or so, although we expect some revival of the currency by the end of the year as the reality of taper turns out to be less disruptive down the road than it is now, and the current account deficit continues to decline." CLSA The recent break above the July 2013 highs opens the door for further weakness towards the next chart resistance in the 67-68 area.
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India goes back two decades as RBI imposes capital curbs to stabilise rupee
ET Bureau Aug 15, 2013, 09.14AM IST

Tags: US Federal reserve| Rupee| RPG Group| reserve bank of india| RBI| P Chidambaram| Oil India| Indian Government| Duvvuri Subbarao

(Indian companies, which)

MUMBAI: The Reserve Bank of India imposed partial capital controls on companies and individuals to stabilise the rupee, but the steps are likely to be perceived as turning the clock back on two decades of liberalisation.

Overseas direct investment (ODI) by Indian companies has been cut three-fourths, 100% from 400%, making it more difficult for local corporates to buy overseas assets. But the central bank exempted staterun Navratna companies, including Oil India and ONGC Videsh, to ensure that its moves do not cripple energy security.
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RBI lowered overseas remittances by locals to $75,000 a year from $200,000, and prohibited investments in overseas property, dashing wealthy Indians' dreams of owning homes abroad. However, those in genuine need of foreign exchange beyond $75,000 per year could apply to the central bank for permission. "It's essentially capital control," said Neeraj Gambhir, MD at Nomura. "(But) the actual impact on outflows may not be large since the approval route is still open and some parts are outside the purview of these measures. The signalling effect is, however, important," he said. Defending the steps, Finance Minister P Chidambaram told ET NOW there was no intention of bringing back capital controls. "RBI's measures are not to be understood as capital control. The announcement preserves the right of a corporate to go to RBI and seek approval in case it wants to take out more than 100% of net worth. These are temporary measures and I am sure RBI will revisit them at an appropriate time," Chidambaram said.

"These measures are to create a stable policy environment for rupee," Arvind Mayaram, secretary, department of economic affairs, told reporters on Wednesday evening. "When the rupee finds its level, these could be reversed," he added.

While seeking to curb outflows, RBI also incentivised banks to raise US dollar deposits by exempting fresh deposits by overseas Indians from reserve requirements. Currently, 4% of deposits have to be held in cash with RBI and 23% of the deposits have to be used to buy government bonds. RBI also raised the ceiling on foreign currency non-resident (bank) deposits to 400 basis points above the benchmark Libor, or London interbank offered rates, from 300 basis points earlier for deposits maturing between 3 years and 5 years. Further, the interest rates that banks can offer on non-resident (external) rupee deposits have been delinked from the domestic rupee deposit rates. Earlier, banks had to keep their rates on non-resident (external) rupee deposits lower or at par with rates offered on domestic rupee deposits. For good measure, RBI, which came up with a flurry of announcements on Wednesday evening, also banned imports of gold coins and medallions and tightened the links between gold imports and exports. Indian companies, which are buying assets overseas due to poor domestic investment climate, will be the worst hit because of the controls on overseas investments. "This is going to put the brakes on overseas ventures and mergers and acquisitions of Indian businesses," said Amarthaluru Subba Rao, group chief financial officer at RPG Group, which comprises tyre maker Ceat and technology company Zensar. "On the one hand, the domestic scenario is not in a good shape whereas Indian businesses are restrained to make investments abroad. It's clearly a double whammy. Overseas business plans have to be reworked now."
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But Chidambaram insisted that the intention was not to discourage corporates. "The most important point is that corporates are not being discouraged from acquiring assets abroad or investing abroad. It's just that the limit has been tweaked." Overseas direct investments in April-July this fiscal were $14.42 billion, up from $9.79 billion in the yearago period, data from RBI shows. This includes investments through equity, loan and guarantees issued. Indians remitted $1.2 billion under the so-called Liberalised Remittance Scheme for individuals in fiscal 2013, RBI data shows. "Investments under the LRS scheme were not very large, so this move will have limited impact," said Rupa Rege Nisture, chief economist, Bank of Baroda. "These measures would be rolled back once stability returns to the foreign exchange market. One should only ensure that withdrawal of these liberalised schemes should not give a negative signal to overseas investors."

Governor Duvvuri Subbarao and Finance Minister P Chidambaram have been busy announcing measures since July 15, including raising short-term interest rates by 200 basis points and squeezing liquidity in order to stall the rupee's collapse. Gold imports, a key factor in the ballooning current account deficit - the excess of consumption overseas than earnings - have been curbed through a series of hikes in import duties. But the currency nonetheless ended at a fresh closing low of 61.44 to the US dollar on Wednesday amid expectations of the US liquidity tap shutting.
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India goes back two decades as RBI imposes capital curbs to stabilise rupee
ET Bureau Aug 15, 2013, 09.14AM IST

Tags: US Federal reserve| Rupee| RPG Group| reserve bank of india| RBI| P Chidambaram| Oil India| Indian Government| Duvvuri Subbarao

(Indian companies, which)

MUMBAI: The Reserve Bank of India imposed partial capital controls on companies and individuals to stabilise the rupee, but the steps are likely to be perceived as turning the clock back on two decades of liberalisation. Overseas direct investment (ODI) by Indian companies has been cut three-fourths, 100% from 400%, making it more difficult for local corporates to buy overseas assets. But the central bank exempted staterun Navratna companies, including Oil India and ONGC Videsh, to ensure that its moves do not cripple energy security.
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RBI lowered overseas remittances by locals to $75,000 a year from $200,000, and prohibited investments in overseas property, dashing wealthy Indians' dreams of owning homes abroad. However, those in genuine need of foreign exchange beyond $75,000 per year could apply to the central bank for permission. "It's essentially capital control," said Neeraj Gambhir, MD at Nomura. "(But) the actual impact on outflows may not be large since the approval route is still open and some parts are outside the purview of these measures. The signalling effect is, however, important," he said.

Defending the steps, Finance Minister P Chidambaram told ET NOW there was no intention of bringing back capital controls. "RBI's measures are not to be understood as capital control. The announcement preserves the right of a corporate to go to RBI and seek approval in case it wants to take out more than 100% of net worth. These are temporary measures and I am sure RBI will revisit them at an appropriate time," Chidambaram said.

"These measures are to create a stable policy environment for rupee," Arvind Mayaram, secretary, department of economic affairs, told reporters on Wednesday evening. "When the rupee finds its level, these could be reversed," he added. While seeking to curb outflows, RBI also incentivised banks to raise US dollar deposits by exempting fresh deposits by overseas Indians from reserve requirements. Currently, 4% of deposits have to be held in cash with RBI and 23% of the deposits have to be used to buy government bonds. RBI also raised the ceiling on foreign currency non-resident (bank) deposits to 400 basis points above the benchmark Libor, or London interbank offered rates, from 300 basis points earlier for deposits maturing between 3 years and 5 years. Further, the interest rates that banks can offer on non-resident (external) rupee deposits have been delinked from the domestic rupee deposit rates. Earlier, banks had to keep their rates on non-resident (external) rupee deposits lower or at par with rates offered on domestic rupee deposits. For good measure, RBI, which came up with a flurry of announcements on Wednesday evening, also banned imports of gold coins and medallions and tightened the links between gold imports and exports. Indian companies, which are buying assets overseas due to poor domestic investment climate, will be the worst hit because of the controls on overseas investments. "This is going to put the brakes on overseas ventures and mergers and acquisitions of Indian businesses," said Amarthaluru Subba Rao, group chief financial officer at RPG Group, which comprises

tyre maker Ceat and technology company Zensar. "On the one hand, the domestic scenario is not in a good shape whereas Indian businesses are restrained to make investments abroad. It's clearly a double whammy. Overseas business plans have to be reworked now."
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But Chidambaram insisted that the intention was not to discourage corporates. "The most important point is that corporates are not being discouraged from acquiring assets abroad or investing abroad. It's just that the limit has been tweaked." Overseas direct investments in April-July this fiscal were $14.42 billion, up from $9.79 billion in the yearago period, data from RBI shows. This includes investments through equity, loan and guarantees issued. Indians remitted $1.2 billion under the so-called Liberalised Remittance Scheme for individuals in fiscal 2013, RBI data shows. "Investments under the LRS scheme were not very large, so this move will have limited impact," said Rupa Rege Nisture, chief economist, Bank of Baroda. "These measures would be rolled back once stability returns to the foreign exchange market. One should only ensure that withdrawal of these liberalised schemes should not give a negative signal to overseas investors." Governor Duvvuri Subbarao and Finance Minister P Chidambaram have been busy announcing measures since July 15, including raising short-term interest rates by 200 basis points and squeezing liquidity in order to stall the rupee's collapse. Gold imports, a key factor in the ballooning current account deficit - the excess of consumption overseas than earnings - have been curbed through a series of hikes in import duties. But the currency nonetheless ended at a fresh closing low of 61.44 to the US dollar on Wednesday amid expectations of the US liquidity tap shutting.
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Hardware companies seek exchange rate variation clause in government orders

PTI Aug 22, 2013, 09.48PM IST

Tags: Tablets| Rupee| Printers| MAIT| Laptop| ERV| computers| Association for Information Technology


(IT hardware players say)

NEW DELHI: With rupee plunging to a new low of 65.56 against the dollar, import-dependent IT hardware players say price of computers and other electronic products may rise and have asked the government to implement Exchange Rate Variation (ERV) clause in contracts. "This falling rupee has made things worse as companies would be forced to increase the prices of important products and consumers would have to dig more from their pockets," Manufacturers' Association for Information Technology(MAIT) Vice President Amar Babu said in a statement.
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The business of IT hardware industry which includes necessary products like computers, tablets, laptop,printers, are predominantly import dependent and are amongst the badly affected due to the sharp fall of the Indian Rupee. "We strongly recommend the Government to implement Exchange Rate Variation (ERV) clause, as mentioned in the Manual of Policies and Procedures for the purchase of Goods. ERV should be incorporated for all government contracts under the circumstances," MAIT President J V Ramamurthy said. MAIT's Babu said that since May, 2013, MAIT has observed substantial price increase to the extent of about 10 per cent. "Losses are accumulating, causing cash flow challenges and blocking investments. Weak rupee can impact Government projects and programs like those of Education, e-Governance, Healthcare, Financial Inclusion, etc. as they use IT products extensively," he added.
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Top five factors why rupee will appreciate vs USD in 2H2013: Deutsche Bank
ECONOMICTIMES.COM Jun 7, 2013, 03.22PM IST

Tags: the rest| Rupee| interest rates| interest rate| Inflation| Indian rupee| India Inc| high inflation| Gold| exchange rates| economy| Deutsche Bank


(However, Deutsche Bank)

NEW DELHI: Indian currency breached its psychological level against the dollar, fueling fears of more weakness and its possible impact on India Inc and importers. However, Deutsche Bank in its latest report said that the Indian currency will recover in the second half of 2013 supported by the government of India's divestment programme as well as monetary easing by the ReserveBank of India (RBI).
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Domestic and global factors are threatening to push the Indian rupee to historic lows, making the import of crude oil and coal more expensive. History suggests that four times since 2008 there have been instances of fears about the rupeedollarexchange rates disorderly movement. Each time, the episodes were triggered by the rupee heading toward another all-time low against the USD. For the year 2013, along with an EM FX sell-off, the rupee has lost 4 per cent of its value against the USD over May-June 2013, testing the "all-time low" again. "The important thing to note here is that in the 2008 and 2013 sell-offs, the rupee depreciated along with its peers as global risk aversion spiked," the global investment bank highlighted in its report. "In contrast, during the 2011 and 2012 episodes, the rupee was an outlier, showing particular weakness due to its own vulnerabilities while the rest Asian FX rates remained broadly stable," added the report. The rupee has depreciated considerably against the USD since early 2008; its 30 per cent correction is indeed the highest by far among any Asian currencies. However, this should not be surprising, given the period has been associated with high inflation, declining growth, and a burdensome current account in need to hefty financing. Deutsche Bank highlights five factors why the rupee should appreciate against dollar in 2H2013: Falling Inflation: Inflation has been declining rapidly, pushing up real interest rates and increasing the attractiveness of investing in rupee assets.

Current Account Deficit (CAD): Current account is likely to correct substantially as the cost of importing goldand oil is declining, weak growth and policy measures are lowering import demand, and rising real interest rate is reducing the need to hedge against inflation through capital flight. Divestment Program: Inflows outlook is broadly positive with a number of disinvestment programs in the pipeline, and a rate cut cycle, the only one in a major EM economy is likely to keep fixed income investors interested. Risk Aversion: Global risk aversion and associated sell-off are likely to abate as Deutsche Bank believes the ongoing concern about the end of QE has already caused the markets to overshoot.
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Fundamental View: From a medium-term fundamentals point of view, the rupee is appropriately valued, with both the real and nominal effective exchange rates having corrected considerably in recent years. Strikingly, the rupee has depreciated by 70 per cent against the Chinese Yuan (CNY) since the beginning of 2007, restoring a great deal of competitiveness against China.
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Sugar steady; weak rupee seen reviving exports

Reuters Aug 22, 2013, 03.23PM IST

Tags: Sugar prices| sugar| stocks| markets

MUMBAI: Sugar futures were steady for a second straight day on Thursday as ample supplies on the back of surplus production in three consecutive years offset hopes a weak rupee would revive exports. At 0908 GMT, the key September contract was down 0.13 per cent at Rs 3,022 ($46.5) per 100 kg on the National Commodity and Derivatives Exchange.
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"Mills are struggling to clear the inventory from this year's production. Within a month, the new season will start. Mills want to settle farmers' dues before that," said a Mumbai-based dealer. Sugar output in India, the world's biggest consumer, is expected to exceed the current year's 25 million tonnes in the marketing year beginning October 2013, on the back of good monsoon rains, Farm Minister Sharad Pawar said. Maharashtra and Uttar Pradesh, the top two sugar producers in India, have received more rainfall than normal since the beginning of the monsoon on June 1, weather department data showed, boosting the prospects of higher production. Spot sugar was down a rupee at Rs 3,059 per 100 kg at the Kolhapur market in Maharashtra state. A weak rupee increases the returns of sugar exporters. The Indian rupee hit a record low hit on Thursday.
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