Two days ago, US Treasury Secretary  Timothy Geithner said the global economy is "back from the abyss" thanks to efforts by the U.S. and other nations to fight the economic crisis. Geithner insisted his G20 counterparts to continue the efforts until there are clearer signs of recovery.

Economy recovery

In another report issued by Government of India, Indian economy has grown from 5.3 last December to 6.1 in June 2009. The Deputy Chairman of the Planning Commission, Montek Singh, commenting the latest figures said: “The worst may be over and we expect to see improved performance in subsequent quarters”.

The government’s stimulus measures for the economy have helped to create demand. The share of consumer spending in the economy shrunk to 55.6% in April-June from 58% a year ago, while the government’s share rose to 9.9% from 9.6% on the back of stimulus spending. Whilst in 2008 the growth index was at 7.8 it fell at 5.3 in the worst month of the crisis and now is slowly moving up to 6.1. With the recovery shown in the last two quarters from 5.3 to 6.1, India remains the second-fasted growing major economy after China, which has an almost 8% growth rate.

The doubt on the stability of this growth rate is cast by the poor ongoing monsoon, which could severely affect agriculture and mostly the energetic field. The worst-hit sector were trade, hotels, transport and communication. Together these sectors posted 8.1% growth in the first quarter of this fiscal compared to 13% a year ago.

Giving his opinion on the matter the prime minister, Manmohan Singh, while addressing the plan panel on Tuesday said: “We have been through a difficult year because of the global economic downturn, which is only now coming to an end with a slow return to normalcy in the months that lie ahead. The country has also seen a poor monsoon”. He cautioned that despite a slight rise in growth, the road to recovery was a long haul.

The recovery has been possible, in part, because the Indian economy is much less dependent on exports, and is largely sustained by domestic demand. Stimulus packages by the Central Bank amounting to more $100 billion also helped businesses to rebound.

Above news from Mr.Geithner, Government and PM of India increases great deal of confidence among investors around the world, especially foreign direct investors(FDI's) who take good amount of risk investing in developing nation like India.  Many of you who closely track the stock market (US or India) can easily visualize the change from Sept 2008 to Mar 2009 to now Sep 2009.

With this backdrop, let us see how the rupee is doing against dollar and how it set out to do in future.

Rupee moving sideways

Rupee dropped so badly to reach the lowest against dollar on Mar 3rd, 2009 when the stock markets crashed all over the world. The economy was in recessions and the tone was set long back for this to happen. It was good times for NRI's who cashed in dollars for great rupee return. But it was short lived until May. After the Indian election in May when congress took the majority and won by big margin, Indian stock market rallied cheering the people decision. 

Rupee also rallied on and recorded the highest gain of 152 paise in more than decade. It moved higher to 47.47 against the US dollar, on anticipation of heavy foreign capital inflows as stock market may continue their rally. It is also because the dollar fell in the market as the crude oil price went up.

After 6 month of downtrend and 2 month of downtrend, rupee against dollar starts to move sideways trending between 47 - 49 INR and currently in 48 INR range. It strengthened after 3 days of free fall (during Aug end and Sept start)  against the US currency. Weak dollar against some other currencies and hopes of fresh capital inflows by foreign funds into equity markets, which may open higher also supported the Indian rupee.

Here is the rupee average for past 9 months. You can clearly see it is wavering and moving sideways from May till today with an average of 48 INR.

May   48.5497 INR (21 days average)
June  47.7459 INR (22 days average)
July   48.4358 INR (23 days average)
August   48.3314 INR (21 days average)


According to an article published in financial express on May 25, Rupee is likely to appreciate to 46 a dollar in the backdrop of a stable government at the centre and relatively resilient domestic demand, says a report by global financial services giant Goldman Sachs.

"We expect the INR to appreciate further from current levels as the stable government and relatively resilient domestic demand become key catalysts for foreign inflows," the report said, adding that the Indian currency "may touch Rs 46 to a dollar within 12 months".

Noting that there are significant pressures for rupee appreciation, the report said that the Indian currency gained about 5 per cent against dollar since the victory for the Congress-led UPA in the general elections. With the rupee strengthening, it said the sectors dependent on imports will gain, the exports will be hit.

Goldmann Sachs analyst very knowledgeable and might have done proper anlaysis to release a report predicting rupee appreciation. With the economy all over the world in reviving mode, commodity prices are going up and US dollar is losing strength in expectation to inflation, there is good chance for Rupee to reach 46 mark or atleast stabilize at 47 mark at the end of the year.

Currently the rate 48 INR is a good one and 46 INR is also reasonable price for both NRI's and indian exporters comparing a year ago when it was at just 38 INR. Just cherish the days and make full use of it.