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Indian rupee sees third annual loss; taper, elections key in 2014
December 31, 2013 / 12:03 PM / 4 years ago

Indian rupee sees third annual loss; taper, elections key in 2014

* Rupee ends at 61.80/81 per dlr vs 61.91/92 on Mon
    * INR down 11 pct in 2013, third successive annual loss
    * Tapering, elections main themes for next year

    By Subhadip Sircar
    MUMBAI, Dec 31 (Reuters) - The Indian 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.

    FACTORS TO WATCH
* Euro set to be 2013's top-performing major currency 
* Stocks headed for 5 pct 2013 loss, S Africa hits record
peak 
* World shares enjoy vintage year, seen gaining more in
2014 
* Foreign institutional investor flows   
* For data on currency futures  

    DIARIES & DATA:
  Indian Data Watch  European diary    
 
  Indian diary           US Diary         

 (Editing by Anand Basu)

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