The rupee is likely to weaken on Monday because of better-than-expected news regarding the US economy this weekend
MUMBAI: The rupee is likely to weaken on Monday because of better-than-expected news regarding the US economy this weekend. An improvement in the US economy is bad news for the rupee as this has revived fears of the Federal Reserve discontinuing its $85 billion-a-month bond buyback programme which may cause a pull out of dollars from emerging markets.
A large number of bankers now expect the rupee to rule in the 60-plus range for the next week. However, the release of data during the weekend gives the RBI enough time to draw up a plan to prevent any sharp fall. In recent days, the central bank has cracked down on banks supporting speculative positions on the rupee. The RBI has also been selling dollars to support the rupee. Other options available with the central bank include opening a window to sell dollars to large government imports such as crude oil and defence equipment.
Discontinuing the bond buyback will lead to leveraged funds - funds that have borrowed cheap money in the US to invest in emerging markets - pulling out money from India. Besides this, better-than-expected growth in the US would result in an improvement in returns from the USequities and bonds and lead to lower capital flows to emerging markets such as India.
A large number of bankers now expect the rupee to rule in the 60-plus range for the next week. However, the release of data during the weekend gives the RBI enough time to draw up a plan to prevent any sharp fall. In recent days, the central bank has cracked down on banks supporting speculative positions on the rupee. The RBI has also been selling dollars to support the rupee. Other options available with the central bank include opening a window to sell dollars to large government imports such as crude oil and defence equipment.
Discontinuing the bond buyback will lead to leveraged funds - funds that have borrowed cheap money in the US to invest in emerging markets - pulling out money from India. Besides this, better-than-expected growth in the US would result in an improvement in returns from the USequities and bonds and lead to lower capital flows to emerging markets such as India.
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