The rupee pared early gains on Friday to be slightly weaker against the US dollar over the previous close as domestic equities continued to be under pressure. Global risk aversion also affected the sentiment for the rupee.
At 10:21 am (IST), the rupee was at 53.54 per dollar after being as high as 53.38 and as low as 53.5850. It had opened at 53.4950 as against the previous close of 53.4250. The Indian currency has lost 4.9% this quarter.
Goldman Sachs said it has been highlighting concerns about India’s deteriorating current-account deficit for some time now, and the recent flare-up in eurozone worries poses further near-term risks to the rupee.
The Wall Street titan said in a note yesterday that it is rolling forward its three-month USD/INR target of 53, given the near-term risks; its six month forecast remains at 50.7. Goldman Sachs has changed its 12-month forecast to 50 from 49.
Goldman Sachs said it is conscious of the possibility of a sharp further deterioration in the rupee given the global and domestic macro headwinds, quick changes in risk sentiment and intervention by the RBI may make such moves short-lived.
From a medium-term perspective, as long as there is no euro area crisis, risk-reward may be more favorable for the rupee, Goldman Sachs said in its note. Growth-inflation trade-off will gradually improve, and on a REER basis, there is some valuation support for the rupee, it added.
Threat of further steps by the RBI to increase FII inflows is large, and may cap upside to USD/INR, Goldman Sachs said.
The RBI yesterday cut the amount of overseas income companies can hold in foreign currency to 50% from 100%, forcing them to convert earnings.
On May 4, the central bank raised interest rates on non-rupee deposits by as much as 300 basis points and freed up borrowing costs on foreign-exchange loans to exporters.