On a weekly basis, Indian Rupee depreciated sharply by more than 1 percent on the back of decline in industrial production data and rise in retail inflation data during the week which had raised expectations of increase in interest rates by the central bank in its December 18 meeting. Also, slow exports data from the country in the month of November raised concerns over the economic growth, thereby adding downside pressure to the currency. Additionally, increased concerns of early QE taper due to string of positive economic data from the US acted as a negative factor for the currency.
Further, victory of BJP in recent state elections coupled with FII inflows could not provide respite to Rupee. The currency touched a weekly low of 62.29 and closed at 62.18 on Friday. For the month of December 2013, FII inflows totaled at Rs.8554.50 crores (USD1389.16 million) as on 13th December 2013. Year to date basis, net capital inflows stood at Rs.105604.40 crores (USD18888.80 million) till 13th December 2013.
Outlook
We expect the Rupee to trade on a negative note today taking cues from forecast for rise in wholesale inflation data. Further, weak market sentiments coupled with more than expected decline in industrial production and rise in retail inflation data in last week will act as a negative factor. However, sharp downside in the currency will be cushioned due to weakness in the DX.
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