Rupee To Weaken Further

New Delhi, July 29 | Updated: Jul 31 2004, 05:27am hrs
Bankers expect the rupee to weaken further in the next couple of months due to a sharp decline in the supply of foreign currency, primarily the US dollar. The exchange rate could slide to Rs 47.5 to a US dollar, feel experts.

Analysts say that the dollar will gain against all currencies after the proposed meeting on federal open market on interest rates on August 8. The Federal Reserve is likely to increase the interest rates by 25 basis points to 150 basis points.

On Thursday, the markets closed at Rs 46.46 to a dollar. The exchange rate on Wednesday was at Rs 46.31 to a dollar and Rs 46.23 to a dollar on Tuesday.

The general elections and the subsequent drought-like situation have discouraged the foreign institutional investors (FII) from actively investing in the Indian market. The change of guard at the Centre has also added to uncertainty in the market, said experts.

According to Anil Sareen, chief manager, State Bank of India, the supply of foreign currency has slowed down since April.

The foreign exchange reser-ve, which at present is slightly over $120 billion, had seen a steady growth in the last financial year. However, the inflow has slowed down and is likely to remain subdued in the coming months, he said.

Echoing the same sentiment, Arun Kaul, general manager (treasury), Punjab National Bank said, With the global interest rate firming up, the US dollar is likely to gain further against other currencies, including the Indian rupee.

Mecklai Financials chief executive officer Jamal Mecklai, however, said that after October, the rupee may marginally gain against the dollar. Most exporters have been buying dollars in the last couple of months, which is in turn putting pressure on the rupee, he said.

According to Mr Mecklai, the buying-selling activity of the dollar is likely to regain after October, which would release the unsold dollars and thereby easing the demand-supply gap.