The Indian rupee is likely to strengthen to 60-61 level to the US dollar by this fiscal-end on expectations of improvement in current account deficit (CAD) and higher inflows from overseas investors, according to analysts.
The Indian rupee, Asia's worst performing currency, has fallen over 20 per cent against the US dollar since April. The currency had dropped to a fresh life-time low of 65.56 against the greenback yesterday.
"We expect the Indian rupee to recover from its current level and end FY 2014 at 60 to a dollar," rating agency Crisil said today in a note.
"We expect the current account deficit to fall to 3.9 per cent of GDP in 2013-14 compared to 4.8 per cent last year. The correction in CAD is expected significantly in the second half due to a decline in non-oil imports, including gold," Crisil maintained.
A report by British bank Barclays said it expects the Indian rupee at 61 to the dollar in the next 6-7 months "which partly reflects a current account improvement".
According to the report, CAD has the potential to "surprise favourably" and pegged its at around USD 68 billion (from about USD 80 billion earlier).
"Unless capital flows surprise further to the downside, we think the recent improvements mean India should be able to almost fully fund its current account deficit in FY 2014," it said.
Barclays maintained that in the near-term Indian rupee weakness could persist, especially in the absence of policy initiatives to quickly boost capital flows.
"Foreign capital inflows are expected to pick up in the second half when the steps announced by the Government to attract USD 11 billion in capital inflows begin to materialise," Crisil said.
Foreign institutional investors have pulled out over USD 12 billion from India's debt and equity markets since May this year.
However, Crisil said risks to its forecast on the Indian rupee arises from uncertainty among foreign investors about the impact of the US Fed's likely pull-back of quantitative easing on global liquidity and risk appetite.
Fed Chairman Ben Bernanke had said in May and June that the central bank would start reducing its monthly asset purchase programme by December and completely wind up by mid-