Sliding for the third straight session, the rupee depreciated 16 paise to 66.83 against the US dollar in early trade on Wednesday in a knee-jerk reaction to the revision of a 33-year-old tax treaty between India and Mauritius that can potentially impact foreign institutional investments routed through the tax haven.
However, an ET report suggested that top officials in the government had held discussions with fund managers on the issue before the announcement. The government has taken adequate care to ensure the changes don’t have a drastic effect through a staggered rollout that does not impact existing investors, ET reported.
Overall, experts believe global cues including the expectations of June fed rate hike will dominate the rupee movement. “I think that (diminishing June rate hike expectations) will definitely continue for some more time, but once we see the interest rates going up there would definitely be a further strengthening of the dollar and that itself would be putting pressure on the rupee,” said Madan Sabnavis, Chief Economist, CARE Ratings.
Just keep looking at the global factors which will drive the rupee direction and I would think RBI has been quite active on both sides to prevent an undue movement in the rupee levels so I would think the 66 levels will hold for some time and as we get later in the year we will start looking at the redemption of the FCNR deposits coming up and fact that RBI has covered most of its exposure will mean that the currency will stay more or less stable around levels .