Aug 23, 2012, 08.20 AM IST | Source: Moneycontrol.com

Rupee may hit 60 by June 2013: India Forex Advisors

The Indian Rupee had hit an all-time low of 57.33 levels to the dollar recently. It has depreciated more than 18% since January 2012. (Low of 48.55- high of 57.33).

India Forex Advisors

The Indian Rupee had hit an all-time low of 57.33 levels to the dollar recently. It has depreciated more than 18% since January 2012. (Low of 48.55- high of 57.33).

India Forex Advisors has come out with an exclusive research on the Pace of rupee. The overall movement of the rupee (since 1996) was studied which reflected that the pace of depreciation has been much steeper than the pace of appreciation.

Legend: The rows A, B, F and G show the steep trend of depreciation in the rupee, while rows C, D and E show the appreciating trend in the rupee.

The rupee is seen weakening over a period of time against the dollar. It is observed that the pace of depreciation has been faster than that of appreciation. Though the appreciation has taken more time, the percentage change has been lower than the percentage of depreciation.

As seen in the below table, row A indicates that the rupee took 254 days to depreciate by more than 17% whereas row C indicates it has taken more than 400 days to appreciate by a mere 10%. A similar situation is seen between rows E and F, where the rupee has taken more than 300 days to appreciate by 15% while on the other hand, it has depreciated by more than 24.45% in 279 days.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chart   Start Date  Closing Value  End Date  Closing Value  No of Days  Movement
A 01-Jan-95 31.38 05-Feb-96 37.9 254 Depreciated by 17.20%
B 13-Aug-97 35.78 19-Aug-98 43.1 223 Depreciated by 16.98 %
C  06-Aug-02 48.9 31-Mar-04 43.6 401 Appreciated by 10.84%
D 09-Aug-04 46.18 31-Dec-04 43.46 102 Appreciated by 5.89%
E 02-Aug-06 46.63 24-Dec-07 39.28 324 Appreciated by 15.77 %
F 07-Jan-08 39.26 02-Mar-09 51.97 279 Depreciated by 24.45%
G 26-Jul-11 44.07 22-Jun-12 57.12 249 Depreciated by 22.86%

 

 

 

 

 

 

 

 

 

 

 

The conclusion arrived from the above analysis, shows that

The pace of depreciation is much wilder than the pace of appreciation. The study showed that rupee depreciated for 2 years while it appreciated for 1 year on an average. The rupee has weakened over a period of last 15 years.

The in-depth study by the IFA research team has taken in to consideration various local indicators such as slowing GDP, widening CAD, fiscal deficit, IIP, WPI and BOP. A correlation is shown between all the above mentioned indicators and the Indian rupee. It showed that poor performance of these indicators were majorly responsible for rupee weakness. (The trend is clearly reflected in the charts which evaluates the performance from 2000 onwards).

The study of international factors such as US 10 year treasury yields, German yields, Dollar Index has been shown to test the risk aversion and its amazing correlations with the USD/INR in recent times. The co-relation between US treasury yield and rupee works perfectly showing an inverse relation between them whereas a direct relationship between Dollar Index and Rupee.

The International issues such as European Crisis, Recession in US, UK have added to the global economy slowdown putting pressure on Asian and emerging nations. The growth performance of the emerging nations has seen clearly dipping down and could drop further if the global issues are not addressed in the time to come.

The heavy risk aversion in the global market could be measured with the US treasury yield dipping below 2% and hitting the record levels of 1.38% lowest since 1912. The Dollar Index after breaching over 100 levels in 2000 and seems to have bottomed out near 72.69 levels in 2011. The report indicated a fresh bull run in 2011 when it breached levels of 82 in 2012 with a target of 88-89 levels as high risk aversion on China slowing and positive economic numbers compared to its Europe and UK which may push the US economy to stronger levels. Moreover a clear break of Head and shoulder pattern is also visible on the charts suggesting the above target.

The study also highlighted the lack of future effectiveness of the stimulus measures carried out by central banks which were seen supporting the rally in the global assets market in 2009-2010. For economies that have already used QE they are facing the problem of diminishing returns.

The Fed’s first round of asset purchases between late 2008 and 2010 reduced corporate-borrowing rates by nearly a percentage point; its QE2 program of $600 billion in Treasury purchases, rolled out in late 2010 succeeded in bringing down corporate rates by 13 bps only.

The weakness in rupee was contributed by both the domestic as well as international issues. The efforts taken by the RBI was in vain. The RBI sold around $12 billion in 2011 and around $11 billion by June 2012. The scope of RBI of intervention through dollar sales in the Forex market is reduced since 2008 due to limited Forex reserves and lack of sufficient flows. The research also pointed out graphically the declining import cover ratio which is matter of serious concern.

IFA has also done an extensive research on the performance of the Dollar index during crisis and non-crisis period. The crisis in the global market has always boosted the dollar index substantially as it is viewed as a safe haven by the investors across the globe.

The study has indicated few BLACK SWAN events, which could strongly boost the US dollar in this year like war between US-Iran, credit excesses in China and a possibility of India downgrade As per the report the USD/INR maintains a bullish trend and the trend is likely to continue in 2012-2013 and target rupee towards 60 levels with a best possible base rate of 52.10 in by June 2013.

Click on the attachment to read full report

To read the full report click here

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