Will Indian Rupee come out of the woods in FY14?

The rupee has been on a rocky terrain in the recent past, due to the weak domestic fundamentals. The extent of depreciation is a grim reminder of the currency's fall. From the below graph it can be seen that the rupee has been down the hill most number of times in the last 5 years with depreciation to the extent of Rs.10.50 in FY 2008-09. The prime reasons for the downfall have been persistent feebleness in the global scenario coupled with domestic concerns hitting growth numbers.

The current account deficit has been deteriorating for more than two years now, and has crossed another unacceptable number recently touching record high mark of 6.7 percent in the last quarter. Sticky inflation, sluggish growth figures have further fueled the downward journey of the rupee. Nonetheless, the government had pushed some important reforms to encourage capital inflows such as to allow more hot money flows, increased import duties on gold.

Although dark clouds of further weakness continue to hover over the rupee, it would be interesting to see if it could come out of the woods in FY 2013-14.

The below graph shows the movement in the USDINR pair in the financial years since 2008

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