Rupee may test 54 by end-2008: Kotak Bank

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Mumbai, October 27: : The Indian rupee may weaken to 52.50-54.00 per dollar by end 2008 on heavy capital outflows and pressure on the trade deficit from falling exports, Kotak Mahindra Bank said in a note.

The partially convertible rupee was at a record 50.15 per dollar at 1:00 p.m. on Monday as the stock market tumbled, although the central bank's dollar sales helped slow the fall.

Apart from actual intervention, the central bank has also tried to prop up the local currency by allowing banks to pay a higher interest rate on NRI deposits and raising the limit on companies' overseas borrowing.

"The relaxations in ECB, FCNR(B) and NR(E)RA is positive for the rupee in the medium-term but is unlikely to lead to significant inflows immediately," Indranil Pan and Kaushik Das, economists at the bank said in the note.

"Increased global risk aversion and deleveraging is not only likely to lead to further capital outflows," they added.

India's trade deficit widened to a record $13.94 billion in August as exports growth slowed and imports surged, led by oil purchases, according to latest trade data from the government.

Expectations of further interest rate cuts by the central bank, following a surprise reduction last week, may also add to the depreciation pressure on the local currency.

The rupee has lost more than 20 per cent of its value so far this year and is among the worst-performing currencies in the Asian region, Reuters data shows.

The dollar will retain its status as a "safe haven" currency amid a deepening global recession and falling oil prices, which will weigh further on the rupee.