MUMBAI, February 8: The foreign exhange market is bracing for a return of the Bharitya Janata Party (BJP) to power at the centre. The party's stance on the rupee -- it seeks to avoid "unrealistic" level for the Indian unit -- has been greeted favourably by a market which is always hungry for a rupee band."Since BJP wants to avoid unrealistic level, we are hopeful the BJP government -- if it is formed--will defend the Indian currency. It is, however, difficult to predict what is the realistic level... May be a strong rupee backed by prevalent economic factors," a treasury head of corporate having interests in imports said.
According to NS Paramasivam, head of forex at Essar Group, confidence will be restored in the Indian currency once a stable government is in power. "It looks like the BJP is likely to form a government and we can look forward to a stable rupee," a chief dealer at a private run bank said. A consensus seems to have emerged among forex dealers that the BJP is extremely serious indefending the rupee against the dollar. "Given the fact that they (the BJP politicians) are not averse to reforms and are not against foreign portfolio investments, inflows can be expected when they are in power," Paramasivam said.
Former finance minister in the BJP government and one of the co-authors of the BJP manifesto, Jaswant Singh, has gone on record saying that he is not averse to foreign direct investements.
Dealers feel that with a party having definite view about the rupee at the centre, the Reserve Bank will not hesitate to support a band. "Through this, the Reserve Bank will also regain some credibility. In recent past it failed to defend a level... it failed to defend the currency at 37.50 against the greenback and in no time the rupee crossed the 40 level," a chief forex dealer at a private bank said.
The BJP which was the principal opposition party in the dissolved parliament has been harping on the need to defend the Indian rupee when speculators had launched an attack on the Indianunit. The rupee lost ground from 35.70 in mid August, 1997 to touch 40.45 in mid-Janaury. The Indian currency has already started showing signs of recovery aided somewhat by the petering down of the South Asian currency crisis and the deft handling of the situation by the Reserve Bank of India which waged a war against the speculators.
The central bank unleashed a series of tight money measures to suck out liquidity from the system which saw the rupee gain against the dollar after hitting an all-time low of 40.45.
The rupee is right now reigning at a level of 38.60-38.80 which is likely to appreciate once a stable government is formed at the centre, dealers feel.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
