Morgan forecasts further fall in Re

MUMBAI, May 26: Morgan Stanley Dean Witter, has forecast that the rupee will touch Rs 43 from the current Rs 41.50 by the year-end. The rupee is over-valued by about 15 per cent against a purchasing power parity benchmark and the central bank will prefer a gradual depreciation of the rupee, said a report by Morgan. In line with interpretation of the central bank’s policy stance it is believed that the factors underlying the deterioration in the trade account are fundamental and warrant a larger currency depreciation than it was forecast earlier, said the report. It also said that buoyant import growth and continuing export slowdown are widening India’s trade deficit. The regional currency and financial crisis South East Asia has had an impact on India. Non-Japan Asia is the destination for 28 per cent of India’s exports.

The increase in commodity imports in non-Japan Asia which accelerated after the regional turmoil broke out in mid 1997 has pressured domestic industries in other countries. Large increaseswere recorded for imports of iron and steel, electronics goods, fertilisers and coal. Morgan expects a continuation of the trend of more rapid import than export growth for India.

As a result it is expected the trade and current account deficits to widen in fiscal year 1998(ended March 1998) and fiscal year 1999.

The institution also forecast a slowdown in total capital flows from $9.6 billion for fiscal 1998 to $ 8.1 billion for fiscal year 1999. The slowdown mainly reflects expected net repayments of commercial borrowings and a slowdown in the growth of non-resident Indian deposits, said the report. The lower capital inflows and a wider current-account deficit would result in an overall balance(current account plus capital account) in contrast to the forecast surplus of $4.3 billion for fiscal year, it said. India’s trade deficit has widened considerably in the past three months. For the three months ended in February, the trade deficit reached $2.9 billion.