Four factors that will decide rupee movement near-term

Moneycontrol Bureau

Continued strength in the US dollar and India's still elevated current account deficit in the early months of this financial year both imply the rupee is unlikely to strengthen much in the near team, says a report by brokerage house Espirito Santo.

"However we still maintain that given a likely improvement in the CAD later in FY14, a positive balance of payments, further relaxation of FII debt limits and further liberalisation of FDI, the rupee should have appreciated to  around 52 by March 2014," says the report.

Following are the four factors that will determine the rupee movement against dollar in the short term.

* The World Gold Council (WGC) expects India's gold imports to touch a record at 300-400 tonnes in the April-June period, which implies a 200% YoY increase. Government has been announcing policy curbs to suppress demand for gold.
 
* Chief Economic Advisor Raghuram Rajan confirmed that the government is planning to raise the FDI cap in some sectors, including defence and telecom. While the cabinet has approved a hike in the cap in insurance and pensions to 49%, the bill is still pending in Parliament.

* The government is likely to raise the debt limit for FIIs in G-secs by USD 5bn. India is also likely to relax KYC norms for FIIs by June-end. 75% of the current USD 25 billion limit for foreigners in government bonds had been exhausted as of June 3.

* An import cover ratio of seven months might deter the RBI from intervening directly in the FX markets, thereby increasing the odds of administrative measures to mitigate rupee weakness.

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