- Created: Monday, 28 July 2014 15:41
The currency of India is standing firm at the exchange rate of 60 Rupees per 1 dollar as per the records of recent months. Last year, with the falling economy and unstable reforms of the government brought the value of Rupee closing at 69 rupees in exchange of a dollar in August last year.
The new Modi-led government changed the scenario of markets in the past few months boosting the market indices, i.e. NSE Nifty and S&P BSE Sensex and appreciating the value of INR to 60 rupees per dollar. Indian economy fell magnanimously during the last year, therefore the recovery reforms are acting up quickly promoting hastened growth. The good news about positive balance of payment overview, business friendly structural reforms and rapid growth are raising hopes of investors.
Forex investors are looking forward to growth in the value of rupee. Other investors inspired from the growing trend in the markets, outperforming companies in the first quarter are hoping to secure higher profits with increased value of INR.
"Investments in the India determined to climb will most probably jump up to $1.9 trillion from $600 billion in the coming decade," an American multinational financial services provider said.
In reports of the coming decade, gross domestic product (GDP) is rising with an average growth of 2.5 percentile in the year 2024, starting at 1.5 percent as reported now. Current Account Deficit predictions are painting trend at 2.5 percent of GDP over the coming next 10 years.
Financial analysts at the American service provider said, "Foreign direct investment (FDI) is the major player pushing up the one of the worlds fastest growing economy's currency." These are the supporting factors of the economy which are appreciating the value of Rupee.
The other side of the coin holds strong with the central bank of India pressurizing the currency to stick low. According to the world-renowned research and financial corp. of America, Reserve Bank of India (RBI) will continue purchasing dollars over the coming years safeguarding rupee from external volatility, such as unexpected hike in oil prices or splurging interest rates in the US. After INR rises stably, India will receive the benefit of having a sponge back to support its prevailing rates in the events of external shocks.
"The country's import cover depreciated much after the global financial crisis, and RBI needs to build up $100-150 billion of reserves to bring back the import support crossing 12 times... Similarly, India's external coverage ratio at 2.26 times is far behind the average set at 4 times for EM economies, forcing the country to work on increasing its forex reserves," an economist explained.
Growing inflation is one of the biggest challenges for rupee as it has a direct effect on the purchasing power of the country. Countries with steeply growing inflation, like India are depreciating their currency exchange rates to fight the growing prices but it does not solve the root problem.
"Assuming that US CPI inflation levels to its target of 2 per cent and India follows a dis-inflationary passage in the coming years, the inflation differential compared to US is going to stand 30-35 per cent decline in the purchasing power parity fair value for the Indian currency, our computation over the minimal value estimated over a decade points out a 75-85 range," an investment bank said.