Only last year rupee was on a roll. On September 21, rupee climbed to its 9-year high at 39.90/91 to a dollar backed by substantial jump in dollar inflows from both the Foreign Institutional Investors (FIIs) and Foreign Direct Investment (FDI). As foreign investors chased Indian growth story like never before, rupee emerged as Asia's best-performing currency; it gained 12.3% vis-à-vis dollar during 2007. However, while it proved to be a boon for importers, it created panic among exporters—from IT industry to textile manufacturers, large to small—as a strong rupee made a dent in their bottom line. Much to the cheers of exporters, rupee has been on a consistent decline since the beginning of this year. In the first five months of the current year, rupee fell from 39.59 a dollar, touched in January this year, to 41.79 dollar by May 8. A host of factors—from rising current account deficit of the country to drying portfolio flows on concerns over soaring oil prices and economic slowdown worldwide—have had a negative impact on the value of rupee, this year. The rupee fell to a 14-month low of 42.98 per dollar on June 10, 2008. It is the lowest since April 2007 amidst record oil prices which hastened fears of a global recession and slowdown in portfolio investments from foreign investors. Rising demand for dollar from refiners and other importers have also had an adverse impact on rupee in the current year so far. The rupee has lost 5% against the dollar this month and nearly 8% this year, weighed down by signs of slowing growth, high oil prices and three-and-a-half years' inflation.
Does that mean that the party is over for rupee bulls? While no one is willing to bet so, views pouring in from many quarters are not very encouraging though. "We think that the outlook on the rupee is still bearish as the relaxation in External Commercial Borrowing (ECB) norms does not compensate for the rising current account deficit," said Goldman Sachs, the global investment banking giant, in a recent research note, while reacting to the government of India's decision to relax overseas borrowing norms for domestic firms and also enhance foreign investment limit in the country's debt market.
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