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Rupee likely to strengthen further, say experts

Rupee remains a good buy

Foreign exchange dealers and analysts in India have forecast a stronger rupee in the short term.

The forecast comes in the wake of improving economic indicators and foreign capital flows.

The strengthening of the rupee may test the containment skills of the Reserve Bank of India, India's central bank.

The sentiment that rupee is bound to become stronger has been reinforced by the prospect of a stable and pro-reforms national government taking office after the general election in October.

Experts point out that political stability had ensured high levels of foreign capital inflows in the past. In 1996-97, when the economic slowdown began, foreign capital inflows totaled $ 12 billion. By 1999-2000, they slid to $ 8.5 billion.

The period marked the rupee's slump by 18 per cent to the US dollar. (India allows rupee convertibility only on the current account). Today, the rupee closed at 43.48 to the US dollar. In August 1997, it was at 35.70.

Dealers feel rupee is all set to stage a recovery. They draw hope from the resurgent economy and increasing focus of foreign investors on India. This is expected to lead to a steady dollar inflows into India. Rising imports have triggered a demand for the US dollar, but experts foresee that the dollar inflows will be enough to match it.

Lower interest rates - currently they are in the 12 to 16 per cent range -- and lower fiscal deficit will aid faster economic growth, boosting financial markets, dealers say.

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