Rupee May Fall to 65/Dollar in 3-6 Months: Rajwade

The Indian rupee weakened past 60 per dollar for the first time in over one month on Monday amid rising crude prices, which jumped to near nine-month high above $113 per barrel.

Oil prices have risen over 4 per cent over the last week on account of a sudden eruption of violence in Iraq. Oil prices can jump sharply if the conflict threatens oil refineries south of Baghdad, analysts say.

India imports nearly two-thirds of its oil needs, leaving its currency especially vulnerable to price swings. Surging crude oil prices threaten to push up domestic inflation pressures and aggravate India's currency account deficit, which was the single-biggest reason for the sharp decline in rupee last year.

The rupee fell to 60.23 to a dollar, a level last seen on May 6, as demand for dollars from oil companies weighed. Traders were also seen buying the greenback as they looked to square off their short dollar positions. (Read full story here)

"As long as the Iraq crisis continues, this should be the trend for the time being. And, if RBI doesn't intervene, and the Iraq crisis continues, it will definitely remain below 60 to the dollar," said Ashtosh Raina, head of forex trading at HDFC Bank.

Currency expert AV Rajwade told NDTV that the rupee could slip to 65 per dollar over the next three-six months though the currency's movement will also depend on what strategy the Reserve Bank adopts.

"In terms of competitiveness, the rupee should be somewhere around 65 but I am sure policy makers will take into account inflation, subsidy and therefore fiscal deficit before taking a decision," he added.

Mr Rajwade said he prefers an undervalued currency because that will ensure economic and employment growth.

"India needs cheaper rupee, costlier dollar for a competitive economy because our trade sector is uncompetitive. We had a trade deficit of $150 billion last year and I think that deficit means that much lost output and employment," he added.

The rupee had slipped to a record low of 68.85 per dollar in August last year, triggering a crisis-like situation. RBI Governor Raghuram Rajan, who joined in September, unleashed a number of steps to bring the rupee down.

Mr Rajwade says the rupee was overvalued by 17-18 per cent in 2013-14, which impacted India's export sector.

"Over the last 60-70 years, every fast growing economy has done so on the basis of undervalued exchange rate and a rapid grow in manufacturing... Our manufacturing sector, as a percentage of GDP, has been constant at 14-15 per cent," he added.

Mr Rajwade conceded that India will have to struggle with high inflation if oil prices remain high and the rupee tumbles. Besides, exchange rate also has implication on fiscal deficit as the country subsidies petro products, he added.

(With inputs from Reuters)