This Article is From Apr 25, 2014

Rupee overvalued, should trade at 70/dollar: Rajwade

Rupee overvalued, should trade at 70/dollar: Rajwade

The rupee weakened past the 61/dollar mark earlier this week, slipping to over one-month low, on the back of global cues and good demand for the dollar from oil importers.

Analysts in the past have maintained that the rupee is likely to stabilise around the 60 per dollar mark till the electoral verdict is out on May 16 after which the movement in the currency will depend on the kind of government that assumes power at the Centre.

However, recent pressures in the currency and an upward trajectory in consumer price inflation (CPI), or retail inflation, has led currency expert AV Rajwade to forecast a gloomy scenario for the Indian currency, which had recovered sharply after hitting a record low of 68.85 per dollar in August 2013.

Mr Rajwade told NDTV that an exchange rate of 60 per dollar is not sustainable as India's export growth has fallen steadily over the last few months, an indication that the current rate is not competitive. (Watch the full interview)

He said, "If you take RBI's real effective exchange rate (REER), which uses CPI, the rupee is overvalued by about 13-14 per cent; this suggests that for a neutral rate, exchange rate needs to be around 70."

Mr Rajwade, however, added that the rupee's fate will also be decided by foreign portfolio investors, who have been putting money into India this year on hopes of an economic revival post elections.

"If that (overseas investment) keeps coming, the rupee remains stable...the moment that money doesn't come in, the rupee comes under pressure. Instead of exporting the goods and services, we have exported our exchange rates to scores of fund managers outside India," he said.

Mr Rajwade praised RBI Governor Raghuram Rajan for succeeding in curbing the rupee volatility, but added that Dr Rajan should also be looking at fundamentals such as the competitiveness of the exchange rate.

The rupee was trading at 61.15 today versus its previous close of 61.07 amid lack of any major triggers though month-end dollar demand from oil importers could push the pair higher later in the session. (Read the full story here)