MUMBAI, AUG 8: It seems there is no end in sight for the rupee depreciation. Persistent dollar demand from importers drove the Indian rupee to fresh lows against the US currency on Tuesday and analysts expected it to weaken further and crash below the 46 level.Analysts said there had been little reaction to Monday's announcement by Singapore Telecommunications that it planned to invest $400 million in two Indian telecom firms, but news of more foreign direct investment could bolster the rupee. Technical analysts said, however, that the charts pointed to further weakness for the rupee.``The rupee may drop to 46 per dollar in the next two or three trading sessions,'' said a dealer. There are two options before the RBI including resorting dollar sales to some extent from its forex reserves and some other measures like restriction on exports for reducing their export earning foreign currency (EEFC) by at least 25 per cent from existing 50 per cent.Analysts said the weaker rupee reflected India's widening trade deficit, a slowdown in foreign capital inflows and the dollar's recent strength against other currencies. Dealers and analysts did not expect any fast turnaround in those fundamentals and expected the rupee to ease further. "If the current trend against the rupee has to reverse, it could only be with aggressive central bank intervention," said a dealer at an European bank.But that seems a limited option. The RBI has run down its foreign exchange reserves by more than $2.0 billion from their mid-April peak of $38.341 billion. Bankers are doubtful about the effectiveness of the RBI's liquidity tightening measures as demand for dollars appears to be genuine importer demand, which is outweighing dollar receipts from exporters and foreign investors.The next phase of the RBI's rupee support package, announced on July 21, kicks in on Saturday when banks' cash reserve ratios (CRR) will be raised from 8.25 percent to 8.5 percent and their refinancing limits will be cut further.India's trade deficit - most of India's trade is denominated in dollars - rose around 26 per cent in the April-June quarter compared to last year, driven up principally by a 94 percent increase in the oil bill.While there are hopes the rate of increase in the oil bill will taper off in coming months due to lower global crude prices, analysts still expect the current account deficit to rise to around 2.0 per cent of gross domestic product (GDP) in 2000/01 (April-March) from around 1.5 percent a year earlier.And foreign funds have been heavy sellers recently, dumping equity worth nearly $550 million in June and July. While funds have bought a net $51.6 million so far in August, analysts say it is too early to report whether the selling trend has been reversed. The benchmark Sensex of the Bombay Stock Exchange is some 30 per cent off its record high of 6,150.69 hit on February 14 although it is up some 13 per cent from the year's low hit in May.
