Speculative activity has mostly ebbed in the foreign exchange market

The rupee is unlikely to fall below 63 to a dollar even if the Reserve Bank of India (RBI) withdraws temporary measures such as direct sale of dollars to oil importing companies and the foreign currency non-resident (FCNR) swap facility put in place to support the currency, as speculative activity around it has mostly ebbed in the foreign exchange market, according to a paper released by the Associated Chambers of Commerce and Industry of India (Assocham).

Besides, foreign institutional investors (FIIs) have turned buyers in the capital market and exports have made an impressive rebound — the developments that would lend support to the rupee, which will trade in the range of 62-63, the paper says.

Worries on current account deficit (CAD) have also gone away, and Finance Minister P. Chidambaram has already stated that CAD for the current fiscal would not be more than $60 billion, the paper adds.

“All these positives now set a stage for the RBI for a possible withdrawal of the measures,” the paper says.

“Today, India is much better in terms of its macroeconomic indicators — be it government finances or the overall balance of payments situation,” the paper adds.

The FCNR deposit swap facility, which has already raked in more than $13 billion to the country’s forex kitty, is likely to bring in $20 billion directly to the sovereign treasury when the facility ends by November 30.

Besides, the RBI may end the direct dollar access to the oil importing companies even earlier.

It is only then that the real strength of the rupee will be decided by free market forces, “but we are sure that these market forces are now poised in favour of the Indian currency than the U.S. greenback,” the paper points out.

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