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US debt ceiling: Rupee appreciation seen limited

Source : BUSINESS_STANDARD
Last Updated: Wed, Oct 16, 2013 21:30 hrs
An employee arranges Indian currency notes at cash counter inside a bank in Agartala

Even as uncertainty looms ahead of the US debt ceiling deadline on Thursday, the Street does not expect a significant strengthening in the rupee against the dollar in the near term. This is because month-end dollar demand is up ahead, apart from defence-related dollar payments.

Experts say if the US shutdown issue is not resolved, it will have a negative impact on the Indian economy, with exports likely to take a hit. Meanwhile, efforts to end the US government shutdown and avoid a debt default before Thursday's deadline remained tough to as the White House on Tuesday dismissed the latest House Republican proposal to resolve the impasse.


"In terms of sentiments, this will have some positive impact. But in reality, the rupee movement is more determined by demand and supply of a dollar," said Mohan Shenoi, president (group treasury and global markets) at Kotak Mahindra Bank.

The rupee closed at its two-week low on Tuesday, on the back of dollar demand by importers. The Indian currency ended at 61.85 against the greenback, compared with its previous close of 61.55. The rupee had opened at 61.28 and, in intra-day trade, touched a high of 61.97 and a low of 61.28. On Wednesday, the foreign exchange market was shut due to the Bakrid holiday.

A few experts also believe the rupee is headed towards weakening. "If the House Republican effort to move the proposal to reopen government is passed tonight with minimum agreeable agenda, then the rupee will weaken tomorrow (Thursday) against the dollar and even breach the 62 per dollar level," said Pramit Brahmbhaat, CEO, Alpari Financial Services, (India).

Since the start of FY14, the rupee has weakened by 14 per cent. The currency had touched an all-time low of 68.85 against the dollar in late August, owing to month-end dollar demand from importers.

"Any negative news in the US affects India in a negative way. I do not see the rupee appreciating significantly because domestic demands for dollar is there. RBI may not be very concerned if the volatility is in the range of 30-40 paise in a day," said Partha Bhattacharya, deputy CEO, Mecklai Financial.

Most currency dealers see the rupee trading in the range of 61.00 to 63.50 a dollar in the near-term. The rupee has strengthened 1.2 per cent since the start of this month on the back of news about the US shutdown.

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