The rupee almost dived to 60 against the dollar on Thursday, but aggressive action from Reserve Bank of India (RBI) helped it close at 59.57/USD, which was a positive takeaway said, Moses Harding, Head of ALCO and Economic & Market Research, IndusInd Bank.
However, given the weak fundamentals, the rupee may continue to be under pressure due to global weakness both in bond and equity markets, he cautioned.
"Currently, the ball is in government's court to ensure that rupee stays within 58-60/USD and prevent extended weakness beyond 60/USD at his stage.I would continue to watch 59.60/USD range play," he told CNBC-TV18.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: Another day of weakness across the emerging market currencies, they are down between 1.5-2.5 percent, (a) are you sensing any kind of panic which might result in the rupee being perhaps oversold in today’s trade and (b) what are the key levels that one could watch out for?
A: It was an aggressive Reserve Bank of India (RBI) that prevented posting of rupee low above 60/USD. The good thing was that RBI ensured that the rupee close was be well below 60/USD, at 59.50/USD ,so that any kind of gap up on the USD/INR driven by non-deliverable forwards (NDF) play does not overshoot 60/USD. So that was the positive takeaway yesterday.
Having said that the fundamentals continue to remain weak, there is lot of pent up demand and post Federal Open Market Committee (FOMC) statement, two structural reality have come into play; one, we cannot get sufficient foreign institutional investors (FIIs) support to finance current account deficit (CAD) and two, monetary policy support will not be available to growth. The only positive takeaway is a sharp reversal in the commodity prices.
Therefore, rupee will continue to be under pressure due to global weakness both in the bond and equity market. Our government cannot be dependent on the supply to support growth, to support rupee. They need to come out with strong credible measures, so that the sentiment and confidence of the stakeholders improves significantly.
Q: So for the day if we do breach 60 to the dollar level then what level would you be watching out for? Yesterday, government did make noises about many steps to curb the volatility in the rupee and even if they do announce it, do you think it will be of any help or will it continue to be dictated by the way global currencies are moving?
A: I would continue to watch 59.60 /USD range play. Government continues to make noises but nothing is getting converted into execution but if they do something credible then we will see a rupee recovery to 58/USD. However, if there is any kind of disappointment and if that triggers a sell-off in equity markets like a combination of pullout of FIIs from debt and equity then that will put rupee under tremendous pressure and we may get into a 60-62/USD kind of range.
So, the ball is in the government’s court to ensure that rupee stays within 58-60/USD till fresh factors emerge. We look up to the government to prevent extended weakness beyond 60/USD at this stage.