The recent downgrades by international rating agencies and a low interest regime might dampen foreign capital flow, which could weaken the rupee to 47.38 per dollar by November, according to a report prepared by the Institute of Economic Growth (IEG).

"Market expectations of a reduction in interest rates to prop the industrial sector and the S&P downgrade may further weaken the rupee in the coming months," the report said.

IEG has forecast that the rupee-dollar exchange rate will slide to 47.17 in August, 47.20 in September, 47.25 in October and 47.38 in November.

The economic think tank added that the increasing trend in forex reserves may not be sustained, and said, "the reserves would stabilise around $43 billion in the coming months."

IEG, however, said the recessionary trend of the global economy might protect the rupee from a sharp fall.

Although expectations of a Bank Rate cut was a dampener for FII inflows, IEG said: "the expected reduction in lending rates of all major banks followed by the SBI decision to reduce short term rates might increase investment, and boost industrial performance in the coming months."

Based on IIP data till May, the agency said that industrial growth was expected to be higher at 3% per cent in July and move up further to 4.2% in November.

- nriol.com report

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