Rupee at 18-month high. What next?

Tue, 30 Mar Pre-Open

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'Roaring rupee, sulking dollar', reads the headline of one of India's leading business dailies. Indeed, rupee has been in great spirits of late. The partially convertible Indian rupee ended very close to the 45 per dollar mark yesterday. It thus touched an 18 month high. Experts opine that the rally in rupee may not have fizzled out just yet. Rising FII inflows coupled with India's economic resilience could make the rupee rise even further.

It should be noted that the FIIs have ploughed in close to US$ 4 bn so far this month and this makes it the second best monthly net inflow ever. FII appetite though may be far from being satiated. There is a lot of liquidity waiting in the sidelines and given India's economic strength, a good part of it may find its way into the Indian stock markets. This could cause further appreciation in the rupee.

Sudden appreciation in the rupee could be hurting Indian exporters. None more so than the software companies. Little wonder, most of them closed in the red yesterday. However, more damage could well be coming their way. Disruptions in the global economy in the past few months has made life difficult for IT companies. Currency swings have been pretty frequent and pretty volatile and this has caused a fair degree disruption in the earnings profiles of IT majors. Sadly, these companies can do little but wait out this volatile period and hope that some sort of a structural trend in the currency emerges. However, those days do seem some distance away.

US could see a double dip recession

The common man is usually under the impression that well heeled economists have all the answers to problems facing the global economy currently. However, nothing could be further from the truth. Even they could be found groping in the dark and groping massively at that. Take the current recession in the US. It has left the best economists puzzled. The bone of contention seems to be the jobless recovery that is underway in the world's largest economy. And opinion is equally divided over what would happen in the forthcoming employment report. While some economists predict an increase of around 400,000 jobs, others are predicting a small decline! So much for economics being a fairly reliable tool.

A lot of people are arguing that growth in employment usually lags economic growth and hence all is not lost. However, others do not seem all that sanguine. They reckon and perhaps rightly so that the Government spending, which was buoying up the overall employment numbers to some extent, will be fading later this year and this would put further pressure on the employment rate. Unless of course, the Government decides to continue with their stimulus measures. Thus, the US seems to be in with a strong chance of having to endure a double dip recession.