Asian currencies posted their biggest gain since 2006 with widening interest-rate premiums attracting capital from overseas. In one of its most volatile years ever, the rupee appreciated at a lower pace of 4.10% as against 5% in 2009, ending 2010 at Rs 44.71 to the greenback.
Given the numerous factors at play, such as strong capital flows and the rising price of crude oil and of course the movement of the dollar, treasury heads are more comfortable predicting a range for the Indian currency this year. Ananth Narayan, head of fixed income and currencies, south Asia at Standard Chartered Bank, said,?Given the uncertainty over capital inflows and oil prices, we expect the rupee to weaken against the dollar in the medium term. We are looking at a broader range of USD-INR at 44-47 through the year.?
Adds Jamal Mecklai, CEO, Mecklai Financial, a FX advisory firm, ?I expect rupee to be a little weaker in 2011 and the average spot price should be in the range of 46.25-46.50. The widening current account deficit coupled with rising inflation may keep investors nervous. With Europe still reeling under financial turmoil, globally the situation remains uncertain wherein investors would seek safety of the dollar.?
However, Moses Harding, head ? global markets group from IndusInd Bank is a tad more bullish on rupee. ?There could be 3-5% year on year appreciation of rupee against the dollar and the currency could end the year at 43.35-42.50 compared with the close of 44.70 in 2010,? he observes.
Meanwhile, in a move that could have an impact on the Indian currency, an official Chinese newspaper recently indicated that China would allow a 5% appreciation of the yuan in the coming year. The report has also said the appreciation would be predominantly in the first half of the year. This possible appreciation of the Yuan could support the strength of the rupee during the course of the year, though the immediate reaction might favour the dollar against the majors and Asian currencies, say experts.
China?s yuan strengthened beyond 6.6 per dollar for the first time in 17 years bringing gains for 2010 to 3.6% on speculation China will seek appreciation to tame inflation. The Bloomberg-JPMorgan Asia Dollar Index jumped 5.2% in 2010 as funds based abroad poured a total of $63.4 billion into shares in India, Indonesia,Philippines, South Korea, Taiwan and Thailand. India saw portfolio inflows of $29.3 billion in 2010. The flows helped cushion India’s current account deficit, in the September quarter, which widened to a record $15.8 billion, or 4.1 % of GDP, on the back of higher trade deficit.