Rupee could fall to 47/dlr by FY11 end - expert

The rupee has risen too sharply in real terms over the last 15 months on surging capital inflows, an influential official who served on the country's capital account convertibility panel said, calling on the Reserve Bank of India (RBI) to intervene. A.V. Rajwade, an independent forex strategist and former adviser to the central bank, said there has been about 25 percent real appreciation in the rupee over the last 15 months, partly due to inaction by the RBI. "An appreciating currency is as deflationary as a hike in interest rates, so whether it is that, or whether it is being driven by Delhi, we don't know. But whatever it is, we are doing a disservice to the broader economy," Rajwade said. The real appreciation in any currency can be measured through the Real Effective Exchange Rate (REER), which is a weighted average of a country's currency relative to an index or basket of other major currencies adjusted for the effects of inflation. Rajwade said the rupee could retreat to 47 per dollar by the end of March 2011. By comparison, a Reuters poll at the end of last month, forecast the rupee would appreciate to 43.5 at the end of India's current fiscal year. He attributes his bearish rupee view to three factors: "a further worsening of the current account deficit, possibility of a change in the RBI's exchange rate policy, and FIIs (foreign institutional investors) reviewing their outlook on the Indian corporate sector's profitability." The rupee hit a record low of 52.2 against the dollar in early March 2009 and has since then recovered to 44.4 as of Tuesday, a 17.6 percent gain. "I do not recall any comparable period when such appreciation has happened, and that too at a time when the dollar itself has risen against other currencies," he said in an interview.