Third worst year for rupee in a decade

The year 2013 marks the third worst year for the rupee against the dollar in 10 years. It depreciated 12 per cent in 2013. It would have been more if the Reserve Bank of India and the government had not taken a host of measures to prop the Indian currency, down 25 per cent at its nadir in end-August.

In the past 10 years, 2008, the year of the global meltdown, was the worst year for the rupee, when it depreciated almost 24 per cent. Measures taken by the government and RBI to curb gold import and attract foreign inflows helped the rupee gain ground since early September. Foreign exchange reserves also recouped after a three-year low in early September.

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RBI data show forex reserves fell in the week ending December 20 by $12.6 million to $295.50 billion. But experts say the position is comfortable. Through the swap windows for Foreign Currency Non-Resident (Banks) or FCNR (B) funds and banks' overseas borrowings, RBI mobilised $34 billion earlier this year.

The rupee ended at 61.80 a dollar on Tuesday, the last day of 2013, compared with the previous close of 61.92 a dollar. The rupee strengthened on the back of dollar inflows from companies and less demand for dollars, as most importers had covered their positions. The rupee had opened at 61.87 and during intra-day trade had touched a high of 61.77.

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The all-time low was 68.85 on August 28. From there, the recovery has been smooth, despite the US Federal Reserve finally announcing it would cut bond buying by $10 billion a month from January, to $75 billion. The decision was taken on the back of improvement in the US economy.

Experts believe the worst for the rupee is behind us. “Broadly, the rupee should range between 61 and 64 to a dollar in 2014. If the rupee strengthens over 61, RBI will start buying dollars. I also do not see the rupee weakening over 64 to the dollar because the current account deficit has come down significantly and the US Fed's taper has not resulted in too much of outflow from emerging markets.

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“Raghuram Rajan, Governor, RBI, has created a lot of confidence among foreign investors, due to which they are quite happy with the kind of returns they are getting from our domestic markets,” said Mohan Shenoi, president, group treasury and global markets, Kotak Mahindra Bank.

The crucial factor will be the election results in 2014. “The rupee will trade range-bound till the elections. As the prospects of stock markets are looking better, we might see the rupee appreciating towards 60. At that level, RBI might start building its war chest (in terms of forex reserves)," said G Ananth Narayan, regional co-head (global markets and wholesale banking, South Asia), Standard Chartered Bank.

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“If the elections throw up a stable government, the rupee might even move to a stronger level. The external situation is looking a lot better and all eyes are on the domestic outlook,” added Narayan.