Where do we see rupee Dollar rates by Dec 2017?

The forex market is a complex market and many experts have often gone wrong. Many corporate treasuries have burnt their fingers heavily taking bets on which side the rupee vs dollar would move. But, after all the dollar and rupee rate is a function of demand and supply, subject of course to periodic RBI interventions to check extreme volatility. If there is more FDI, FPI flows and exports there is less reason for the rupee to depreciate in the near future. On the other hand, if crude oil prices start moving up it can hurt the rupee badly. Right now on balance, there are more factors that indicate that the rupee can remain strong in the near future as FDI as well as FPI flows and remittances are likely to be strong. Jamal Mecklai, a forex expert in a recent interview suggested that we may have to live with a rupee stronger than most people expected. The global economic outlook is improving helping India’s merchandise exports to grow. And last but not the least this government is committed to fiscal prudence where it is tackling unwanted subsidies and improving revenues to keep India’s deficits under control. Many are calling India an “island of stability for next five years”.

The recent IMD prediction that this time the South West monsoon may be normal and well spread, also takes away some worry on inflation. On the other hand, crude oil price movements continue to be a worry factor. Any wild swings on upside can make things worse for Indian rupee. It’s important to note that whatever forex is earned through IT, plus auto and auto ancillary plus and pharma exports goes to meet just one import item – crude oil.

Yet not all are equally bullish on rupee strengthening. “We believe that the rupee will weaken and can go to the level of 66-67/$ by March 2018” predicts Sabnavis. Indranil Sen Gupta of Bank of America Merrill Lynch writes in his report predicting the rupee to be at Rs 70 level by December 2017. “As per Real Effective Exchange Rate (REER), Indian rupee is at an all time high over-valuation, which shall negatively impact exports and trade deficit, although with some lag. I don’t think we can sustain at this level. My sense is that in next 3-4 months rupee may depreciate. Our sense is that it should be in the region of Rs 67-67.5 by December 2017” Informs Gupta.

But Business India is confident that the rupee may not see any major depreciation in the immediate future, if at all it has to move down. In that sense rupee is expected to remain stable. This should help many people to plan their businesses. The rupee taking a huge beating with great volatility that we saw in the past is behind us. We are moving into more stable regime and this is big news on forex front. The Modi government is also not very keen to allow the rupee to depreciate to boost the Make In India concept. Their approach is to make the logistics infrastructure competitive rather than play on the rupee rate to make India an attractive destination.

This change in stand is a welcome move. After all stronger rupee does send this right signals to the world outside. If the Modi government lives up to the promises it made, who knows the rupee may be in structural boom period for many years to come as we have all right ingredients to make this happen.

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