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Economy Aug 21, 2013

Markets rally after RBI steps, Deutsche Bank sees rupee at 70 in a month

Mumbai: The rupee could touch 70 against the US dollar in a month or so, although some revival is expected in the currency by the end of the year, Deutsche Bank said in a report on Wednesday.

"We continue to believe that fundamentally the rupee is undervalued and has overshot its equilibrium level substantially, but as numerous episodes of past currency crises have amply demonstrated, under a scenario of deep pessimism, currencies can overshoot substantially and remain so for a long time," economists at the bank wrote in the report.

"India, we fear, is entering such a zone".



The partially convertible rupee dropped to a record low of 64.13 per dollar on Tuesday and was trading at 63.38/42 on Wednesday, weaker than its close of 63.25/26.

Meanwhile, government bonds rallied today after the RBI said late on Tuesday it will buy bonds and eased bond-holding rules for banks to ease tight cash conditions.

The benchmark 10-year bond yield fell as much as 69 basis points to 8.21 percent. It was last trading at 8.28 percent.

The rupee also posted some gains on the back of strong local stocks, with banking shares leading the gains. The rupee was at 63.19/20 versus Tuesday's close of 63.25/26.

Interest rate swaps were also sharply down. The five-year OIS was down 60 basis points at 8.35 percent, while the one-year was down 44 bps at 9.45 pct, traders said.


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