What next for a falling Rupee

Dark clouds loom over the Indian economy with the rupee hitting an all-time low of 62.03 (intraday) on Friday. The sharp sell-off in themarkets reflected the sentiment.

Belated measures by the government and the Reserve Bank of India (RBI) have been largely ineffective in stemming the fall of the Rupee. The overall trend is expected to remain bearish over the medium to long term.

The rupee which was trading sideways in the range of 59-61.5 over the last month or so has broken down from the range on renewed fears of QE tapering.

Tapering is a reality and may start sooner than expected given the series of positive economic data from the United States (US). Emerging markets, including India, continue to price it in, resulting in reduced capital inflows, steadily weakening currencies and rising yield curves.

Domestic equities showed the strain as the benchmark index Nifty plunged to test crucial support levels of 5,500.

TOO LITTLE, TOO LATE

The measures undertaken by the RBI to check speculation and outflows have seen little effect.

The rupee was trading at 60.7 against the US dollar before the first set of measures was announced in July and is now trading at 61.65 at last close.

More such measures are supposed to be on the anvil and perhaps they can provide some relief to the Rupee in the short term.

Technically, the rupee has an important support around 61-62 where it has completed a projected bearish pattern target.

Hopes of some brief pullback remain high as long as it trades below it.

A sustained close below 62 will potentially accelerate the fall in the currency.

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SAmple news item

GALI (J&K): Amid heightened tension along the LoC, which has witnessed a spurt in ceasefire violations by Pakistan, Army on Sunday said it has inputs about Pakistan trying to engineer more Border Action Team (BAT) attacks along the border.

India has blamed BAT, which is a mix of Pakistani special forces personnel and terrorists, for the brutal killing of its two soldiers in January, one of whom was beheaded, and killing of its five personnel along the line of control in Poonch sector.

"There are inputs of such (BAT) actions. In this area they have not done anything so far. There are inputs that they are going to try something (engineer BAT attacks on the forward posts along LoC)," Brigade Commander, 120 Infantry Brigade, A Sengupta told reporters in Bhimbher Gali in Poonch sector along the LoC.

Brig Sengupta was replying to volley of questions about whether there were inputs of more BAT attacks along LoC in Poonch, increase in ceasefire violation and India's response.

"But we are ready for that (any Pakistani BAT attack)", the brigade commander said.

There have been 70 ceasefire violations by the Pakistani troops this year from January one to August 5, which is 85 per cent more than the last year during the same corresponding period, Army officials said.

The fierce exchanges in recent weeks have cast a shadow on the prospect of the 2003 Indo-Pak border truce. India and Pakistan entered into the border ceasefire as a confidence building measure during NDA rule and it will complete one decade on November 26, 2013.

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