Rupee outlook: 8216;Weak8217; through 2012

The rupee,one of the worst performing currencies,is likely to remain "weak" this year as well.

The rupee,one of the worst performing currencies in 2011,is likely to remain 8220;weak8221; this year as well as a further depreciation of 3-5 per cent from the current levels is on the cards,says a research note.

According to research firm Macquarie,the risk of rupee depreciating further to the 55-56 level in near term is likely,however,there is expected to be some pull back in the second half of this year.

Macquarie in a research note said the risk of USD/INR weakening by a further 3-5 per cent from the current levels to around the 55-56 level in the near term is possible.

Saying the funding risk in an environment of deleveraging in the advanced economies is a key concern,Macquarie said 8220;for CY2012,we expect the rupee to remain weak and average around 51,with some pull back in second half of this year.8221;

In order to curtail the weakness in the rupee the Reserve Bank of India,had taken some initiatives,but that is not 8220;enough8221;,Macquarie said.

Moreover,while RBI is likely to continue intervening in the currency market to curb the volatility in rupee,8221;the direction is unlikely to change,8221; Macquarie said.

In order to attract inflows and curb volatility,the RBI initiated measures like rise in the limits on investment in government and corporate debt instruments by foreign investors,hiked the ceilings on interest rates payable on non-resident deposits,increased the all-in-cost ceiling for external commercial borrowings.

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Besides,the central bank has also initiated a series of administrative measures to discourage speculative behaviour.

Following the US sovereign debt downgrade and the increased uncertainty in the Euro Area,the rupee depreciated by 20.6 per cent against the USD since August 2011 and has been the worst performing currency in the Asia excluding Japan region since August 2011.

While the weakening trend against the USD is across the board,the rupee was one of the worst affected largely owing to India8217;s high current account deficit,while most other Asian countries have a current account surplus.

8220;Moreover,the redemption pressure on account of rising short-term external debt also exposes India8217;s external vulnerability in the wake of weak global capital markets,8221; Macquarie said.

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Meanwhile,domestic factors that further pressurised the rupee include India8217;s domestic macro environment,which continues to be constrained by slowing growth,a high fiscal deficit,continuous high inflation and lack of policy reforms.

The rupee had gained 26 paise to close at more than a week8217;s high of Rs 52.95/96 against the dollar yesterday and has gained 6 paise to trade at Rs 52.89 against the dollar today on the Interbank Foreign Exchange as the US currency weakened in the overseas market.