RBI may prefer weak rupee to target trade: DBS

Reuters Market Eye - DBS expects the rupee to trade at 56.20 to the dollar by the end of 2012, arguing the RBI will aim to keep the currency weak on real effective exchange terms as a way to reduce the trade deficit.

A weaker rupee, combined with falling commodity prices, has already narrowed the trade deficit to $13.5 billion in May, DBS estimates, compared with an average $18.5 billion in January-February.

"The lesson the central bank takes from the sharp 25 percent increase in the USD/INR exchange rate over the past year will be to limit the current account deficit so as to minimize the risk of large swings in the currency," DBS argues.