A day after finance minister P Chidambaram and RBI Governor D Subbarao tried to calm panicked markets by assuring that the current account deficit (CAD) would be contained, the battered rupee posted its biggest single-day gain in a year on Friday of 135 paise to 63.20 against the dollar. The recovery was also helped by RBI’s intervention in the closing stages.
The finance minister’s and the RBI’s comments also gave comfort to research agencies, with Barclays and Crisil revising their estimates for the rupee as well as the CAD.
India’s efforts to curb imports, improve exports and attract greater remittances may help it almost fully fund its CAD and also help the rupee recover to 61-level against the US dollar in the next 6-12 months, Barclays said in a research report. Barclays also cut its CAD forecast for 2013-14 to around $68 billion (from about $80 billion).
Similarly, Crisil in a note said that it expects the rupee to recover from its current level and end the fiscal year 2013-14 at 60 against the US dollar. This would be driven by a lower CAD and higher foreign capital inflows.
“Our revised forecast of CAD at 3.9 per cent of GDP in 2013-14 is lower than our previous estimate of 4.2 per cent mainly due to the expectation of a sharper slowdown in non-oil import growth, led by a nearly 28-30 per cent fall in gold imports,” it said in a report.
Finance minister P Chidambaram and RBI Governor D Subbarao had an over three hour long meeting in New Delhi on Thursday. “We believe that the rupee is undervalued and has overshot what is generally believed to be a reasonable and appropriate level. Capital inflows in due course will correct the position,” Chidambaram said after the meeting while Subbarao stressed that the RBI has adequate foreign exchange reserves to deal with the widening CAD.
Dipen Shah, head, private client group, Kotak Securities, said, “Markets continued their pullback for the second consecutive day. Markets have pulled back on increasing optimism that, the rupee has hit the bottom.”
According to a Credit Suisse note, the rupee’s continuing collapse is no longer due to the CAD but due to “fear”. “This fear if not addressed in time can be dangerous but also cannot be addressed with logic,” it said.
The central bank on Friday bought 78 per cent of its planned Rs 8,000-crore government securities buyback from