Today Indian rupee managed to gain towards 62.20/22 against the US dollar, as external merchandise trade deficit declined to USD 9.92 billion last month compared with USD 10.14 billion in December.
Large sell orders in US dollars from speculators in the offshore market enabled a higher close in the rupee. Bullion imports continued the slide, as they contracted nearly 77% on y/y basis to USD 1.72 billion in January. Imports of all goods contracted by 18.07% to USD 36.57 billion. Compared with same month last year, imports have contracted by USD 8.06 billion, out of which bullion imports have contracted by USD 5.75 billion or nearly three-fourth. Curbs placed on bullion imports can not be a long term solution as a result, the improvement that has happened in trade balance is not sustainable over the long term.
Export growth continues to be anaemic at sub-4% for the month of January. An unimpressive growth in exports and forceful curbs on imports mean that quality of the improvement in external balance remains quiet poor.
Over the near term, traders will keep close eye on the January inflation numbers and December IIP data. We expect Indian rupee to trade within a range of 61.70/62.00 and 62.60/80 over the near term. In case the rupee manages to rally beyond 62.00, we expect importers/oilers/corporates to use the gains to lock in their hedges for the next couple of months. Heading into the election uncertainty, adequate hedges on FCY exposure will be considered prudent.