Unabated overseas fund flows into domestic equities coupled with prevailing high interest rate regime could result in a massive surge in rupee value against the US dollar and the local currency may touch the 39-mark by December, say experts.
This will hit the exporters hard, whose incomes have shrunk considerably due to a nearly 12 per cent rise in rupee value in recent months.
Heavy fund inflows, which have crossed $17 billion from March till mid October, would lead to further appreciation of rupee, they said.
"The rupee will go beyond 39.30 in the next two months as it is under immense pressure due to capital inflows which is expected to cross the $25 billion by FY 08," Canara Bank's senior forex dealer Ashish Modi told PTI.
Another factor that would determine the rupee's movement would be the Reserve Bank's decision on its key policy rates.
With the apex bank widely expected to maintain status quo on its rates during the mid-term review of its annual monetary policy next week, the higher interest rate regime would also propel rupee appreciation, the experts said.
"Exporters will have to live up with this reality," Modi said, adding the rupee could rise by about 50-60 paise to hover in the range of 39-39.30 a dollar by December.
According to Federation of Indian Export Organisations Eastern Region Chairman P Saraf, surging rupee has slowed down exports by 20 per cent in the current fiscal.
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