India’s rupee may drop further in the coming days

Abu Dhabi: Any tapering in the US Federal Reserve’s $85 billion-a-month asset purchasing programme, which may be announced in the second half this year is almost certain to weaken the Indian rupee as the dollar’s rise will coincide with foreign investors pulling money out of the Indian market amid restricted greenback supply, experts say.

They say in the event of Fed announcing a pullback in its monetary stimulus, the rupee may test 60 levels versus the dollar and 16.33 to the UAE dirham, a currency pegged to the greenback.

“India’s current account deficit and its fiscal deficit is widening, so the next quarter is going to be crucial for the rupee. If the US Fed’s asset purchase programme is cut to $65 billion a month there are chances the rupee will hit a fresh all-time low and the currency may drop to 61 to the dollar before December,” Sajith Kumar P.K. chief executive of Dubai-based financial advisory firm JRG International told Gulf News.

In the short-term though, the rupee may gain versus the dollar as credit ratings agency, Fitch, last week revised India’s credit outlook to stable and government officials soothed market sentiment with assurance of taking steps to curb the currency’s fall.

The rupee, which touched an all-time low of 58.9850 per dollar and 16.059 to the dirham on June 11, appreciated to close below 58 to the dollar on Friday.

Taking note of the government’s efforts to contain fiscal deficit, Fitch Ratings revised India’s outlook to Stable from Negative and affirmed ‘BBB-’ rating.

India’s Finance Minister P. Chidambaram is also believed to have met with top officials last week to discuss steps that can check the rupee’s slide against the US dollar.

Economists fear the rupee’s drop to a new record low last week may stoke import costs in a nation that buys about 80 per cent of its crude oil from overseas.