1. Indian rupee hits 2-week high on GST ‘magic’; but will it appreciate further?

Indian rupee hits 2-week high on GST ‘magic’; but will it appreciate further?

GST's magic seems to be working on the Indian rupee as well, with the currency appreciating to a two-week high of 66.9975 versus the US dollar earlier in the day.

By: | Published: July 28, 2016 2:51 PM
rupee dollar, rupee dollar exchange rate, rupee dollar exchange rate today, rupee news Currency experts and analysts are of the view that current strength in the rupee is due to hopes of the Modi government finally scoring a win on the GST Bill. (AP Photo)

GST’s magic seems to be working on the Indian rupee as well, with the currency appreciating to a two-week high of 66.9975 versus the US dollar earlier in the day. At the time of writing this story, the Indian currency was trading at 67.03. Currency experts and analysts are of the view that current strength in the rupee is due to hopes of the Modi government finally scoring a win on the GST Bill. Television reports suggest that the Bill will come up in Rajya Sabha next week and the Goods and Services Tax (GST) may well clear the final hurdle of the Upper house in this session of the Parliament. But, while the rupee has been appreciating on this news, analysts also caution that the Indian currency may not strengthen much beyond 66.90 levels.

Jamal Mecklai, MD & CEO of Mecklai Financial is of the view that rupee’s appreciation is largely on the back of the ongoing positive sentiment. “See, the rupee is appreciating because everyone expects GST to be passed. But, I think the currency has factored that in to a large extent. To that effect, I don’t think it will go beyond 66.90 levels,” Mecklai told FE Online. “It’s a good level to buy, but, I would not go too strong,” he said. Asked about his outlook on the rupee, Mecklai said, “It’s the market. Who knows which way it will go. Global uncertainty may even cause rupee to depreciate. One can’t really say. But a depreciation always tends to be sharper than an appreciation.”

Shubhada Rao, Chief Economist at Yes Bank maintains her financial year target for the Indian rupee in the 67 to 69 range. “There is no compelling reason to revise our target for the rupee. The reason why the Indian rupee is hitting a high is because macro fundamentals are strong, we have good foreign exchange reserves, and there has been a quickening in the pace of reforms. All three factors are contributing to a boost in investor confidence,” Shubhada Rao told FE Online. Rao also points out that the Indian currency has been performing much better than peers, especially with the impact of Brexit. “I think rupee will continue to be among the better-performing currencies. There is no reason to believe that it will depreciate to levels in the range of 70 to 72, despite global turmoil. US Federal Reserve may hike rates as early as September and this will cause volatility in the currency markets, but even then the trend does not suggest that rupee will go beyond 69. It may hit 70 on an intra-day level in a one-off case, but overall the target range is intact,” she added.

Shubhada Rao also feels that FCNRB outflows may add to the uncertainty on the currency front. “See, GST and other reforms are adding to the positive sentiment, but I don’t think the RBI will let rupee appreciate much. The Real Effective Exchange Rate does not support that. Additionally, with the FCNRB outflows playing out from September to November, there will be pressure on the rupee,” she explained. Asked about whether Raghuram Rajan’s exit from RBI will also weigh on the rupee, she said, “Rajan is leaving behind a system that he has strengthened. The Monetary policy framework is in place, forex reserves are at good levels, inflation is in check and there is assurance that RBI will be able to handle the FCNRB outflows. So, the fundamentals have been set in place by him. I don’t think we need to worry much on that front.”

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