r2i forum

Folks,

I am very concerned with the falling US dollar. Today 1 USD = Rs. 41.7. Anybody has any idea how to hedge the falling dollar? Also, any ideas if Rs. will weaken in immediate future?

Scary!! I didn't check rates for 3 days and there is a big 2 rupees drop per Dollar.

How strong will Rupee get?

I'd predict until early 2009 rupee will appreciate. After that I can't throw my hat either way. Reasons are simple 1. (Major) lot of US companies are buying services from India (off-shoring-Non tech sectors would also jump into this) and hence plenty of $$$ would be pumped to India. Central Govt. in India is stable and why I say early 2009 is till the next US election. 2. RBI will not intervene as they would incur the losses if they make the rupee weak. 3. All the Desi companies that are benefiting from the US $$$ influx are sitting with heavy cash and not re-investing. They only thing they are investing is RE just like our Govt. ICICI, Infy, Wipro are good examples sitting on plie of cash and not willing to do anything else doing the same. MORE OF THE SAME. I would say $ will go below Re. 39 in the next year or less. 4. Manmohan singh will not touch this issue because from a Macrolevel economic perspective for India this is very good. My 2c other Economic experts chip in.

The problem is combination of inflation and huge capital inflows. RBI used to buy up $ from the market and release rupees to artificially keep the $-INR rate constant. This caused excess liquidity, which is partially responsible for inflation. To contain inflation, RBI is soaking up excess liquidity by raising repo rates and has also stopped buying $. This has caused the appreciation of rupee.

When will be the appreciation stop? Don't know. Might happen when the Market determines the correct rate or RBI intervenes to prop up $.
From FM statement, it appears that RBI will not intervene in near-term.
Inflation seems to be easing, it is down to 5.74% from 6.7%. RBI is on record stating that they will be comfortable with 5%.

Check out this article

Capital flows a challenge: Rakesh Mohan

Gold is one of the options for hedging the falling dollar. But I have no ideas on how to go about? Any suggestions on buying of the metal itself at this point of time?
Thanks.

Lots of good points here. In addition I also think, an additional reason for this is the loss Congress party suffered in Punjab and Uttaranchal state elections. This made the party sit up and take a serious note of the inflation. As a result to contain inflation, RBI will reduce liquidity and/or increase the interest rates again, making the Rupee stronger...

Also, Bush/Bernanke are tyring to weaken the dollar, indirectly, hopefully within their limits.

Political compulsions / requirements matter a lot more than other factors, IMHO.

just my 2 cents, jt

Folks,
India is hoping exports to be a prime driver of 9%+ growth. So, how can rupee be allowed to appreciate as it hurts exporters ?

Indian Govts efforts are making rupee strong..my few business deals were contracted when at $=44 INR, so loosing 5-7% already.

USD is sliding against all currencies...

Cable (GBP) made a 15 year (1.9939) high against the greenback (USD)...and experts are saying it will soon surpass the $2.00 mark

EURO is hovering near all time high against the dollar touching the levels of $1.3576

It is going to make exports from the region dear and travellers to Euro zone will have to cough up more money for less....

And like RBI the European economists and politicians are quite calm over the surge (imagine only a few quarters back the noise that would have been made for such appreciation of domestic currencies)...

the highs are seen as a weapon to combat inflation and also evidently the exports are not doing bad either...in fact eurozone seems to have embraced the fact that fundamentals will drive their currencies high against greenback and in fact may breach the all time high levels....

but the high values also brings in investments into the zone and the businesses are also forced to be creative and a lot more productive to maintain competitiveness in global market for their proucts and services...

of course eurozone and India are not the same