As per the India Stock Blog
The Rupee is fundamentally weak, but has been propped up by overly positive sentiments of Foreign Institutional Investors (FIIs), which are now moderating…
Factors weighing on the Rupee:
Trade and Current Account Deficit
On the surface it would appear that oil would be the cause of the widening trade deficit. But non-oil imports are growing faster than oil imports. The largest growth in imports is… gold!
Financing is largely being driven by fickle sources such as External Commercial Borrowings (ECBs), Non-Resident Indian deposits (where carry trades are getting wiped out every day, with the Federal Reserve likely to up the U.S. fed funds rate at the next two meetings). The volatile FII inflows are unlikely to continue at the soarching pace they have set so far this calendar year
The rupee is overvalued on the trade weighted index, even if you take into account China and Hong Kong in the new REER index that the Reserve Bank of India (RBI) — India’s central bank — is constructing
The Rupee is Quasi Dollar Pegged Despite denials by the RBI, the rupee is pegged to the dollar unofficially. The dollar has strengthened significantly since May (as measured by the dollar index); so the rupee had to weaken.
Withdrawal Pressures in December
In December, the 5 year IMD deposits of US $ 5 bn issued by SBI are due for redemption; this will put pressure on the rupee.
As per the Big Mac equivalent test couple of months ago, the rupee was way undervalued– by 59%.
Q) What do readers think?