The Indian rupee ended lower as banks bought dollars noting its rise globally. Importers also bought dollars. However, dollar sales from exporters and banks' long unwinding limited fall.
Spot rupee ended lower at Rs 47.28 per USD as against its previous close of Rs 47.11.
Government bonds closed lower on the news that the government may announce stimulus plans in the FY10 Budget. It reignited fears of a sharp increase in the government's market borrowing. A slew of auctions slated for the week also weighed on prices.
The widely traded 6.05%, 2019 paper closed lower at Rs 96.40 as against its previous close of Rs 96.90.
Dariusz Kowalczyk, Chief Investment Strategist spoke exclusively on CNBC-TV18: Also watch the accompanying video.
Q: If you can first of all tell us that whether this fear that PIMCO raised on Friday, is it a real fear of downgrades? Where do you see the trajectory of the US dollar versus Asian currencies as well as the majors?
A: I believe that the rating for US government debt will not be lowered within the medium to long-term because debt levels of the US will not approach 100% or close to that number sort of threshold that would trigger such a downgrade.
So, probably we will see the Obama administration managing to stabilise the fiscal situation with debt levels closer to 75% of GDP and that should remove much of those rating downgrade concerns.
As far as the greenback goes, I think that the drop that it suffered last week was excessive and I would expect it to regain some ground against majors over the rest of the year and to dramatically slow the depreciation against emerging currencies including emerging Asian units.
Q: Where do you see the Indian rupee in the next quarter or so versus the dollar? More importantly, the other piece of the Chinese action, they have been moving a lot of their trade to bilateral currencies, the recent deal they struck with Brazil was only the last of 4-5 such deals that they don’t deal with the US dollar, they deal with their mutual currencies. Will this chip away from the strength of the dollar? Where will the dollar rest against various other Asian currencies, particularly the Indian rupee?
A: I believe that by the end of the year the rupee will be trading at 46.5 against the US dollar, which is only 2% up from current levels. I think that this will reflect recovery in Asian and Indian economies, which will support investment flows into the region and India’s current account situation.
So, there is some upside here. But not much upside because the greenback itself against other majors is likely in my opinion to regain some ground as markets focus on the fact that the US economic recovery will come sooner than European or the Japanese.
In terms of what the Chinese are doing with their bilateral swap agreement with many countries, yes, they are trying to denominate their foreign trade in Renminbi and the currencies of their partnering countries. But it is not something that will occur in the near-term even with Brazil.
