The pressure on
rupee is lessening with easing of inflation and improving growth trends and the local currency could appreciate to about 52 levels to the dollar in the next 12 months, a report by Goldman Sachs said on Friday.
"The rupee has been under pressure since mid-2011 due to weak economic fundamentals. Looking forward, we believe the macro fundamentals appear somewhat better due to easing inflation pressures, and growth having bottomed...Therefore, we think the depreciation pressures on the rupee is lessening," the report said.
While the near-term concerns due to an elevated trade deficit remain, the report expects appreciation in rupee after three months.
"Our three, six months, and 12-month dollar/rupee targets remain at 55, 53, and 52 respectively," the report said.
The report also noted strong correlation between GDP growth and currency appreciation saying that as GDP growth happens, it will put appreciation pressure on the domestic currency.
"Since we expect GDP growth to gradually pick up from 5.1 percent in 2012 to 5.8 percent in 2013, we see growth putting appreciation pressures on the rupee going forward," the report said.
The report also pointed out that lower inflation would support the rupee.
"Since we expect WPI inflation to come down to 5.9 percent in 2013 from 7.5 percent in 2012, we think that inflation may not hurt the rupee in 2013," the report said, adding falling current account deficit would also support the rupee.
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