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Barclays Says RBI Unlikely to Strengthen Rupee Past 52 a Dollar

Olivier Desbarres, head of foreign-exchange strategy for Asia-Pacific ex-Japan at Barclays Capital in Singapore, comments on the rupee’s outlook. He spoke in a telephone interview today.

The currency strengthened 1.8 percent to 52.7150 a dollar as of 10:46 a.m. in Mumbai, according to data compiled by Bloomberg, after the central bank took steps to curb speculation in the foreign-exchange market. The rupee, Asia’s worst-performing currency this year, dropped to a record low of 54.3050 yesterday.

“The rupee has strengthened today, suggesting the market has taken note of the measures the Reserve Bank of India took last night. What also needs to be said though is that these measures don’t necessarily address the underlying cause for the rupee’s weakness, which is the current-account deficit and the lack of portfolio inflows.

“Unless we get a big risk-on session and capital flows come in, the currency will stabilize just weaker than 52 a dollar and the market will take it from there. Fifty-two is where we traded for a good chunk of the second half of November, so that’s the level the market may be more comfortable with and the RBI can claim that it has succeeded in stemming the downside for the rupee.

“I don’t think the RBI will try to push the currency more than that because I think it understands that fundamentals work against currency appreciation.”

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