The Hindu Business Line : Rupee appreciates 1.7 per cent this year

The rupee has appreciated by just around 1.7 per cent against the dollar at the end of the calendar year. Its Southeast Asian counterparts - the South Korean won, the Singapore dollar and the Indonesian rupiah - have fared better, appreciating by 9 per cent, 7 per cent and 8 per cent respectively.

The domestic currency was at 45.08/09 in January and is presently trading at 44.30-40. Dealers estimate the rupee over-valuation at 8 per cent going by the Real Effective Exchange Rate, which is around the same as last year.

Bankers say the Reserve Bank of India is worried over the appreciation of the rupee as it makes exports costly and imports cheaper.

Fully convertible

"Other Asian currencies are fully convertible and are more dependent on the dollar's fortunes," said Mr V. Rajagopal, Chief Forex Dealer, Kotak Mahindra Bank. The rupee saw steady depreciation during the first half of the year, touching a year's low of 47.04 on July 19.

"The rupee lost ground during the year due to strong demand for crude oil from importers. The price of global crude oil touched $ 80 per barrel during May-June and subsequently eased to around $ 60 per barrel in November," said Mr J. Moses Harding, Head, Wholesale Banking, IndusInd Bank.

FII flows of $ 8.33 billion till date into the domestic stock market helped the rupee gain against the dollar. The movement of rupee was basically driven by demand of dollars from importers (oil companies) and supply of dollars through FII inflows. During 2006, supplies ran ahead of demand.

"FII and FDI inflows have been squared by a widening trade deficit. The spurt in imports has prevented any major appreciation of the rupee," said Mr K. Harihar, Head, Treasury, Development Credit Bank.

Weakening dollar

The second half of the year also saw the dollar weakening against other major currencies with the US Federal Reserve going easy on interest rates. Unlike last year, market participants are now debating on a rate cut in that country.

Outlook buoyant

Forex dealers expect strong inflows to keep the rupee buoyant. The home currency is likely to appreciate because the dollar may extend its weakness against other currencies.

An interest rate hike is expected in Japan and the UK as well as Europe.

However, major deals like the Tata Corus could see an outflow.

"The rupee is likely to be at the same level next year on the back of good inflows and stay in the range of 44-44.10 in January. But any corrections in the stock markets could weaken the rupee," said Mr Ravi Pai, Head-Forex and Derivatives, HDFC Bank.

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