As the possibility of the gradual withdrawal of economic stimulus given by the Government during the recession increases, the Indian Rupee is likely to feel the downward pressure. The INR/USD rate averaged 46.725 on Monday, December 14. After touching a high of Rs. 51.13 against the US Dollar in March 2009, the exchange rate softened as the results of the economic stimulus began pouring in.

The firming trend in the Asian currencies in general and in India in particular, is a result of heavy foreign capital inflows in the resurgent economies. However, in the wake of rising inflation, the Indian Government has given indications to tighten the monetary policy, coupled with the withdrawal of concessions on the inflow of foreign funds, which is expected to result in the sliding Rupee value. This move is designed to curb the speculations in Rupee value, which is constantly pushing the Rupee up against the Dollar.

Although, the recent Dubai credit crisis is not likely to have a major impact on India, the policy makers are keeping a close watch on the developments. The near-term outlooks for the Indian Rupee remain firm, with the fiscal year-end forecasts at around Rs. 45.00 against the US Dollar.

Economic speculation, especially in the crude-oil industry is driving the currencies of all over the world to a constant low.  New York has reported 3.5% gain in the crude oil prices, in addition to the 9.1% advance that was made in October. This has been the biggest increase in the last 7 months. India produces only a quarter of oil it uses and imports the rest. As a result, rupee has dropped in value and Indian stock market experts are worried that this will slow down buyers’ interest further.

Another drag on the rupee is taken by the negative trends in Asian equities. The rupee weakened 0.1 % to 47.104 per dollar as of 9.50 a.m. in Mumbai. However, Indian currency is still the forth best performance among the rest of Asian currencies. The overall gain is the currency is 3.6 % so far in the current year.

Some of the offshore investment companies have predicted that the rupee will gain from the low to trade at 47.15 to the dollar by the end of November. Reserve Bank of India Governor Y.V. Reddy has said “the declining India’s currency is due to global uncertainties that the whole world is facing. These uncertainties have been taken into consideration in the bank’s policies. Some of these uncertainties have already been analysed and indicated in the core policies of the bank. ”