Mecklai: Re to fall further from current level of 55.50

Let us examine the parallel movement between Brazilian Real versus Indian rupee which has had a correlation of more than 90 percent since 2011, though distorted for a while in September 2012, is now back on track.

The Brazilian Real – The Real dropped to a three-year low of 2.1045 per dollar. In the past several months, the central bank has intervened in the market every time the real has neared the edge of that range, keeping the currency at a level considered beneficial to exporters, and at the same time, not too bad for inflation. The 2Q12 GDP grew 0.4percent QoQ, reinforcing the view that the current recovery is very soft despite monetary easing. This may prompt the central bank to stop intervening and let currency depreciate crossing 2.10, supporting exporters and may boost growth.

 

 

 

 

 

 

 

Indian Rupee – The weakness in currency has been maintained since past year on the back of global and domestic health deteriorating with real GDP ebbing to test 5.5 percent. Higher inflation, no investments, political clout, no actions on structural reforms, large CAD, elevated trade deficit and stagnation in corporate sector has led currency under pressure.

Based on this, both currencies are walking on the same path, except in the month of September 2012 where INR appreciated almost by 8 percent largely due to domestic front where dockets of reforms were announced. Simultaneously, the Fed and ECB announced the easing policies with open-ended buoying global sentiment. However, it reversed swiftly since October onwards as the effectiveness of those reforms remains question mark. Now as Real testing multi year high and INR too following the same path, we might witness Rupee depreciating further from current level of 55.50.

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