Rupee falls to 44.75 again

"The rupee may fall to 44.80/85. The RBI will keep a close watch on the market on Thursday. This, however, will be the last stage of the rupee’s fall during May-June period. Thereafter, we would witness a spell of steadiness. However, the currency breaching the 45 mark in the next 1-2 months cannot be ruled out," eMecklai senior vice president KN Dey said.

Dealers said the rupee’s next move was crucial. If the 44.75 level proved to be a tough psychological resistance for the dollar and encouraged export sales and conversion of foreign inward remittances, there could be a small rebound in the rupee, dealers said.

"Any level between 44.65 and 44.85 is a fair level for the rupee, there should not be any dollar bulls at these levels. And the dip in the value of the dollar against major currencies this week is another reason the rupee’s slide should stop," an economist with a foreign bank treasury said.

"I feel the RBI isn’t unhappy with the way the rupee is going. They want a weaker rupee, but they do not want speculative forces driving that move," said a dealer with a foreign bank. The Reserve Bank of India (RBI) has always maintained it will let market forces determine the value of the rupee, provided there is no volatility or speculation.

The rupee’s second slide, spread over the past two weeks, was slower and had along the way got importers moving from a wholly unhedged position to partial cover of currency exposures.

The gradual five-paise-per-day slide has brought the rupee to levels fairly valued against its real effective exchange rate, analysts said. It is widely believed the fall in the rupee, convertible only on the current account, was engineered by the RBI.

The rupee, even at current levels, is 2.8 per cent lower than levels at the end of 1999, and has in recent Times shown a strong tendency to appreciate against the dollar. Locally, wholesale prices inflation has trebled from levels in February.

And overseas, the dollar’s strength has eroded the rupee’s export competitiveness. Among regional currencies, the Thai baht has lost 3.7 per cent since end 1999 and the Indonesian rupiah 19 per cent. But the dollar was at seven-week lows against the euro and yen on Wednesday.

Corporates said their confidence in the rupee’s stability is still intact, which means foreign currency inflows will stay strong and there will be a very marginal depreciation over the next few months. Most are already predicting another bout of engineered depreciation a year down the line, when they expect the rupee to be overvalued once again.