Mirza Baig, Currency Strategist at Deutsche Bank said that he been fairly bearish on the Indian rupee and he is looking at an upmove up to 44/USD in the next three-six months.

Excerpts from CNBC-TV18’s exclusive interview with Deutsche Bank:

Q: What kind of target are you working with because Rs 43/$ as well, now seems on the cards?

A: For the last several months, we have really been fairly bearish on the Indian rupee and I think a move up to 44/USD is something which we would be looking towards for the next three-six months. I think the driver there really is the expectations or the sentiment shift that they are seeing in many markets around the world right now. We have seen huge amounts of capital inflows into India over the last several years, which includes things like portfolio inflows, foreign currency borrowing by Indian corporates and so on and so forth and because pressures on the currency seemed only one way at the time with the rupee continuing to appreciate, many of these inflows were not currency hedged. So people who have lots of investments in India are sitting on currency unhedged positions and as the trend unfolds higher in dollar, in India there will be lots of latent hedging demands for dollars which we think will keep coming out.

Q: The other part of the problem is that there is still almost a sense of disbelief and most people feel this is a temporary weakness that they are seeing in the rupee. Do you think that this kind of weakness is sustainable and we will probably be closer to the 43-43.5 mark than we will be to sub 40?

A: It is all about how much pain threshold people have; people who have been borrowing in yen and basically extending loans in India are now sitting on mark-to-market losses in the currency right now to the tune of about 4%-5%.

So it is all about whether they think that the more the market moves against them, the more they have incentive to cover their risks. I think that is the sort of disbelief or a sort of complacency with which people have treated the currency, the dollar in India is pretty stuck around Rs39.40/USD for the last several months. I think that is the real reason why it will continue to go higher; people have to catch up for a lot of complacency, which they have had for the last several months.