Rupee Rises Past 63, A Gain of 5 in 15 days!

May Reach 58 by Diwali

The currency tide has turned in spectacular fashion. Asia’s worst performer until last week, the rupee has become the world’s best performer in the past five days as investor confidence has surged following a series of steps to boost inflows and the receding likelihood of a US strike on Syria. At last count on Tuesday 11 Sept, the Rupee was at 63.543 after touching the 63 mark in the course of the day.

The local currency had its best five day rally in four decades after Reserve Bank of India Governor Raghuram Rajan took over. Liberal fund-raising rules for banks and exchange risk cover for NRI deposits are estimated to draw about $20 billion in the next few weeks.

RBI meanwhile allowed a special swap window for FCNR(B) deposits to narrow the current account deficit, a measure of the difference between overseas spending and earnings. RBI will swap the fresh FCNR(B) dollar funds with a three-year tenor at a fixed rate of 3.5 percent per annum.

The Federal Open Market Committee meeting next week will indicate what Fed ChairmanBen Bernanke plans to do with the quantitative easing programme, which has become the lifeblood of emerging markets in the past few years.

The de-escalation of the Syrian crisis has caused oil prices to fall sharply. Brent has dropped by a further 2%. Since the beginning of the week, Brent has fallen by approx. $5 on the back of a declining risk premium. At the falling rate, crude may reach the $85 level reached in mid May this year.

In the speech on 10 May, US President Obama conceded that a diplomatic solution to the Syrian crisis would be preferable and put on ice the planned US Congress vote on the previously intended military strike against the Assad regime.

OPEC and the US Energy Information Administration (EIA) confirmed the picture of an amply supplied oil market. Despite the production outages in some OPEC countries, which the EIA put at a total of 2.1 million barrels per day in August, OPEC produced 30.24 million barrels of crude oil per day and thus more than necessary in August.

What is more, the call on OPEC next year is expected to be even lower than this year because non-OPEC supply looks set to grow more strongly than global oil demand. According to OPEC, the call on OPEC will diminish to an average figure of 29.6 million barrels per day in 2014, while EIA even puts the figure at 29.4 million barrels per day.

Spot gold fall by $40 to $1360 per ounce. We may see it reach the $1200 level in July 2013.

Given the inflow of forex on the capital account as well as exports, the measures to augment forex through the World Bank loan (See Box). The dollar shortage will ease.

Last and most important, the revival of the stock market will fuel the demand for rupees in the Singapore market where the FII trade. The flight from India is now reversed. The sings are good.

-Arun Goyal-

India Cabinet to Consider $4.3 billion Loans from World Bank Arm

India’s cabinet will on Thursday consider a finance ministry proposal to borrow an additional $4.3 billion from an arm of the World Bank, according to a cabinet agenda document.

Under the proposal India would borrow the money from the International Bank of Reconstruction and Development (IBRD), a World Bank subsidiary, according to the note seen by Reuters on Wednesday, which did not give more details.

It was not immediately clear how quickly the money would reach India if approved, or the terms of such loans.

A World Bank spokeswoman said she could not immediately comment. The IBRD usually gives such loans for development and infrastructure programmes, which are often disbursed in tranches over a long period.

India has been scrambling to shore up capital inflows to stabilize its volatile rupee currency.