Rupee down 11 pct in 2013; taper, elections key in 2014

MUMBAI Tue Dec 31, 2013 5:32pm IST

A street side restaurant owner holds a bundle of rupee notes as he sits outside his restaurant in New Delhi November 22, 2013. REUTERS/Adnan Abidi

A street side restaurant owner holds a bundle of rupee notes as he sits outside his restaurant in New Delhi November 22, 2013.

Credit: Reuters/Adnan Abidi

Related Topics

MUMBAI (Reuters) - The rupee ended with gains on Tuesday, but posted a 11 percent fall in 2013, ending a tough year marked by a descent to a record low and suffering from continued concerns about its outlook next year.

Although the rupee closes well above a record low of 68.85 per dollar hit in late August, thanks in part to emergency measures taken by policy makers, the rupee still ends 2013 as Asia's third worst performer and with a third consecutive annual decline.

While a narrowing current account deficit has allowed the rupee to withstand the start of reduced bond purchases by the Federal Reserve, analysts say confidence is still low in an Indian economy suffering from low growth and high inflation.

Analysts also warn India is still too dependant on foreign flows, and needs structural reforms beyond measures such as curbs on gold imports to have a more sustained impact on the current account.

"I maintain a cautious view of the INR for now given the still large current account deficit. While lower following import restrictions, $50 billion deficit remains large funding gap to fill and hard to ignore when portfolio flows start to slow and FDI fails to materialise," said Nizam Idris, head of fixed income and currency at Macquarie Group in Singapore.

"I forecast a flat USD/INR around 62 for the short term, but the pair is likely to head higher towards 66 by the second half of the year if broader economic reform doesn't get off the ground soon," he said.

The partially convertible rupee closed at 61.80/81 per dollar compared with 61.91/92 on Monday, in a range bound trading session. For the month, it was up 1 percent and in the December-quarter gained 1.3 percent.

Foreign institutional investors have been buyers of over $20 billion in stocks this year as local benchmark indexes hit record highs. The debt markets saw outflows of $8 billion, primarily since mid-May, but have turned positive in December.

Beyond how the economy fares, analysts say elections will be another key theme in 2014, with a strong stable government likely to usher in the prospect of more reforms and support the rupee.

How the Federal Reserve further closes the tap on easy money will be another wild card for the rupee.

The one-year forward rose to 498.50 basis points from 315.50 basis points at the start of the year, reflecting the demand for forward dollars.

(Editing by Anand Basu)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

COAL BLOCK ALLOCATIONS

REUTERS SHOWCASE

Financial Inclusion

Financial Inclusion

Modi to launch plan for every Indian household to have bank account .  Full Article 

E-Commerce

E-Commerce

Ratan Tata invests in online retailer Snapdeal.  Full Article 

Sugar Talk

Sugar Talk

Sugar export rebound at risk from rising domestic prices.  Full Article 

GDP Preview

GDP Preview

Economy likely grew faster in June quarter: Reuters poll.  Full Article 

New Ordeal

New Ordeal

After disasters, stricken Malaysia Airlines staff brace for job cuts.  Full Article 

Deal Talk

Deal Talk

Kleiner to invest in messaging startup Snapchat at near-$10 bln valuation - report.  Full Article 

Safety Net

Safety Net

SEBI revamps trading safety-net rules.  Full Article 

Expert Zone

Expert Zone

Column - Why inflation is so persistent.  Full Article 

Fraud Investigation

Fraud Investigation

IMF's Lagarde put under investigation in French fraud case.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage