JPM Thinks India Will Devalue Rupee

Thursday, June 16, 2005

JP Morgan India expects that the Reserve Bank of India (RBI) will devalue the Indian Rupee over the next 9 months in order to upkeep the advantage in exports a cheaper currency brings, indiadaily.com reports.

Indian Rupee vs USD 050616

GRAPH: The Indian Rupee has been in an uptrend since May 2002. Courtesy Yahoo!
According to the report the RBI is well known for intervening to keep India’s currency lower compared to the US Dollar in order to protect the exporters, especially IT and call center businesses.
JPM India said in a report,
"we have for long been skeptical of the sustainability of the Rupee's strength and remain bearish. The Rupee continues to be overvalued on the RBI's real effective exchange rate (REER) by 6.5 to 7 per cent."
This would translate into a devaluation to a level of 45.5 Rupees to the dollar by March 2006. JPM India's report stated further,
"a persistently overvalued rupee will tend to hurt export growth and encourage imports, thus further widening the trade balance", it said.
"Nevertheless, as the inflow of foreign capital raised by Indian companies recedes,... RBI may wish to intervene anew should market forces fail to correct the perceived overvaluation within an acceptable timeframe."
BombayShares 050616

GRAPH: Indian shares did not suffer from the appreciation of the Rupee, the SENSEX shows. Courtesy Yahoo!
For earlier reports on India jump to "For a Stable Currency Turn (Not Too Far) East" and "Reserve Bank of India Gives "All Clear" Sign."

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