Bank of America Merrill Lynch in a research note has said the Indian rupee is likely to stay "volatile" in the near term but the worst may be over.
The domestic currency has depreciated by 6 per cent over the past month.
"We feel that most of the depreciation may be behind us as gold imports are reducing and likely to fall given measures taken by government. Secondly oil prices are stable and thirdly government may be forced to raise flows through NRI bonds," BofA-ML said.
The rupee had on Tuesday hit a life-time low of 58.98 against the US dollar but erased a major part of losses to close at 58.39 after the Reserve Bank of India (RBI) possibly having intervened in the forex market to stem the slide.
The rupee, however, still closed 24 paise lower at 58.39 compared to its previous day's close, extending losses for fifth straight day.
The BofA-ML report says in the near term, the Indian currency is likely to be volatile due to global events and RBI will have to instill confidence in the market.
The BSE Sensex slumped by 298 points, or 1.53 per cent, on Tuesday. Meanwhile, FIIs sold shares stocks worth Rs 885 crore according to the provisional data with stock exchanges.
According to the report, the rupee volatility raises near term risk to inflation and to a rate cut this month. "The markets will be volatile in line with global trends and near term we may see some more correction," it added.
The rupee has weakened from 53.8 levels in April-end to over 58-levels at present and is also among the worst performing emerging market currencies in the 2013 so far.
The domestic currency has depreciated by 6 per cent over the past month.
"We feel that most of the depreciation may be behind us as gold imports are reducing and likely to fall given measures taken by government. Secondly oil prices are stable and thirdly government may be forced to raise flows through NRI bonds," BofA-ML said.
The rupee had on Tuesday hit a life-time low of 58.98 against the US dollar but erased a major part of losses to close at 58.39 after the Reserve Bank of India (RBI) possibly having intervened in the forex market to stem the slide.
The rupee, however, still closed 24 paise lower at 58.39 compared to its previous day's close, extending losses for fifth straight day.
The BofA-ML report says in the near term, the Indian currency is likely to be volatile due to global events and RBI will have to instill confidence in the market.
The BSE Sensex slumped by 298 points, or 1.53 per cent, on Tuesday. Meanwhile, FIIs sold shares stocks worth Rs 885 crore according to the provisional data with stock exchanges.
According to the report, the rupee volatility raises near term risk to inflation and to a rate cut this month. "The markets will be volatile in line with global trends and near term we may see some more correction," it added.
The rupee has weakened from 53.8 levels in April-end to over 58-levels at present and is also among the worst performing emerging market currencies in the 2013 so far.
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