MUMBAI, Mar 30: Standard Chartered Bank, in its poll of 100 treasurers, has said that the rupee will depreciate by 9.24 per cent over the next six months even as monetary conditions ease. Corporate-India expects a reduction in the prime lending rates (PLRs) of banks through an expansionary slack season credit policy, the poll says.The rupee is not expected to go into a tailspin like other south-east Asian currencies, but corporates expect it to depreciate by 9.24 per cent over the next six months. The poll says that "the bulk of the correction will take place prior to May. Corporates reckon that it would take a while before foreign capital inflows into the country regain their past intensity."The poll adds that the interim pressure on the balance of payments will push the rupee down further in the next three months.
The six-month annualised forward premiums are expected to gradually come off during the next half year. "This is not surprising," says the poll, "the Reserve Bank is widely tipped to easemonetary conditions once the rupee stabilises. Lower interest rates are seen as necessary to sustain the recent pick-up in credit and boost industrial production. Lower interest rates through the fundamental interest rate parity principle would imply lower forward premiums." The Reserve Bank is expected to cool down interest rates by cutting the bank rate and the cash reserve ratio (CRR). State-run banks are expected to lower their PLRs by at least 50 basis points, while the foreign ones may do so by a bigger margin, the poll says.
The bourses are expected to turn bullish. "As the contagion effect of Asia's currency crisis wears out, foreign investors are likely to separate India's fundamentals from those of south-east Asia," Stanchart says.
It has been observed that none of the problems that characterise the tiger economies -- untenable current account deficits, huge exposures of the banking sector to property markets and overleveraged corporates -- are present in India. Corporate earnings are expectedto improve over the next year.
Stanchart's poll of treasurers reveals corporate-India to be moderately bullish on the financial sector. "It should encourage the Reserve Bank to revert to its easy monetary stance. Otherwise, financial market participants will be spooked," the British bank's poll report says.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
