The rupee fell by 17 paise to close at 43.33 last Tuesday, thereby losing 58 paise since May 26 when India launched an air attack on the infiltrators occupying Kargil and Drass border areas. However, the very next day the Indian currency bounced back to prove the Cassandras wrong and on Friday the quote was steady at 43.15.

Most forex experts feel that the rupee will not collapse suddenly and will drift down to quote in the range of 43.60-43.75 by the end of December 1999. Senior executive vice-president of ICICI Bank PH Ravi Kumar said the rupee will be traded at 43.60 by December.

The only caveat is that the Kargil conflict should not escalate. If the present scale ofconflict is maintained, the rupee would be below 43.50 to the dollar or could even be stronger at around 43.40, he pointed out.

Nevertheless, if the conflict escalates, the value of rupee may fall below 43.80 by September itself, said Ravi Kumar. Senior vice-president of Mecklai and Mecklai KN Dey added another dimension to the issue by saying that election results would not affect the rupee much.

"The outcome of the elections should not have much bearing on the value of the rupee as the rupee in India is driven by market forces as well as sentiment," Dey said. For example, when the government fell in April, the rupee lost only 10 paise and subsequently regained its value.

From recent statements by RBI officials -- "Rs 45 to a dollar is too far, while Rs 42 is too low" -- one gets the feeling that the central bank is looking at around 43.5 as the correct peg for the dollar in the current year, pointed out another forex dealer.

Dey said that the rupee should trade in the range of 43.95 to 44 to adollar by March 31 next year. In the short run till elections in September 1999, the value of the rupee should be below Rs 43.50. Credit Lyonnais country treasurer PH Ramaswamy is confident that the rupee would remain in the range of 43.10 to 43.50 to a dollar till December and by March 2000 it may dip to 44.50.

One forex dealer in a foreign bank said 43 is the floor price for the rupee and it should not appreciate above this level. According to her, if the rupee breaches the 43.50 mark, the market will witness a sudden rush from corporates to take fresh cover. Ravi Kumar of ICICI Bank allayed such fears saying that the total cost of the Kargil skirmishes would be only Rs 5,000 crore till October.

This amount is very small compared with the total level of government borrowings and would not put any pressure on interest rates. Although he felt that the cost of war may go up to Rs 15,000 crore, the country can absorb such cost without putting any pressure on interest rates.

With speculators kept on atight leash by the central bank, forex experts do not expect much volatility in the market. One school of thought is that the Indian currency should not depreciate if one takes into account the real effective exchange rate (REER).

Dey pointed out by taking the base year of 1993-94, the REER value of the rupee is in the range of 43.50 to Rs 43.60. "It is difficult to visualise the value of rupee depreciating beyond REER," said Dey.

Fundamental factors like strong FII inflows ($400 million per month) and the low level of inflation should protect the rupee even though other currencies, particularly the Euro, are weakening against the dollar, forex dealers said. Ramaswamy said that only the expected devaluation of the Chinese currency can put pressure on the rupee. The question is not how much would the devaluation be, but when it would it take place. According to him, it could take place sometime in mid-2000. As and when it takes place, all Asian currencies including the rupee, would feel pressure.