Re to see 43-43.5/$ levels in next 2-3 months: Experts

Q: What is it that is muscling up this strength in the dollar right now, is it the expectations that the Fed might actually halt in terms of their moves or start moving in the opposite direction or is it primarily like you indicated what’s been happening with crude prices?

Piron: We have two hypotheses. Generally the market is at some stage of confusion. The first hypothesis is that the delivery is more benign and we have unwinding of positions; we have some of the negative terms of trade shock through higher oil prices, which is naturally a negative for Asia. In that respect, we have seen Asian currencies weaken whereas some of the Latin American, European and African currencies have done relatively better in this context and if you have looked at the dollar with the major crosses, it has done pretty much nothing.

The second hypotheses is potentially Asia is behind the curve and we have a more inflationary impulse; the Central Banks in Asia are sitting on their laurels and taking things too easy with a prospect of higher inflation, particularly if the Fed cut cycle is over and now the focus resumes on terms of inflation. If by some surprise, we were to get the Fed tightening by the end of the year; I don’t necessarily subscribe to the second hypothesis - I would still fall in the former category, that this is just the near-term of trade shock that we are witnessing. But it does help in the background to keep that second scenario - whether we see a more sustained inflationary impulse come through which may adverse Asian currencies and the Indian rupee for a more sustained period of time.

Q: Comment on the fact that inflation across economies is high and we are also dealing with that problem - would you expect the RBI to in terms of Managing the Currency as well as higher inflation?

Mecklai: Claudio is right. It is the inflation issue, and it is the more serious problem than people think it is. However, I am optimistic that it is not going to get out of hand. But that’s what is going to keep the market off balance. I don’t think there is a whole lot of what RBI can do, raising rate is not monetary phenomenon. So that’s not what they can do very much; there was a lot of talk some time ago that maybe they should strengthen the rupee to contain inflation. I don’t think that works here and I don’t think they are going to do that. So we just have to ride it out and it's going to be sort of edgy times and people who got accustomed to a strong rupee got surprised. But that’s the market and the market is supposed to surprise you from time to time and the real lesson that people have is they have to learn how not to focus on the price and really to focus on the managing risks.