Speaking on the weakening rupee after it touched an all-time low of 58.17/USD, NS Venkatesh of IDBI Bank told CNBC-TV18 that the home currency may range between 57.80/USD and 58.30/USD levels in the near-term.
He added that the sharp movement on Monday was due to heavy dollar buying by banks.
He said the high current account deficit (CAD) will continue on account of rupee's current status, but a minor pullback can be expected due to dollar-selling by exporters and remittances from non-resident Indians (NRIs).
He could not determine whether the Reserve Bank of India (RBI) would intervene to stabilise the currency.
Below is the edited transcript of his interview to CNBC-TV18.
Q: What is the call on the rupee in the near term? Are you expecting a little more weakness? After such a fall perhaps, could we expect some covering?
A: Yesterday's sharp move was a bit of a surprise to the market. Around 110 basis points (bps) or Rs 1.10 paise movement was very sharp.
Essentially, this happened as custodial banks were buying dollars. As a result, the foreign institutional inflows (FIIs) debt outflow was taking place.
Against other currencies, the rupee has not depreciated sharply. But with the dollar it really has depreciated. The other Asian currencies like ringgit or baht have also depreciated. But that is not a support for our rupee.
The high current account deficit (CAD) problem continues. So, the rupee is expected to be under pressure for a bit more time. At this level, exporters will now start selling dollar.
We will see more remittances from the non-resident Indians (NRIs). This will give a bit of temporary support. So, we will see a minor pullback in the rupee today. The rupee may range between 57.80/USD and 58.30/USD levels.
Q: The FinMin for now has ruled out any immediate steps to check the volatility in the market. It said that the panic is just temporary and more global related. Are you expecting the Reserve Bank of India (RBI) to step in, looking at he way the rupee has seen such a sharp depreciation in just one trading session?
A: Generally RBI does not defend a level because they are more concerned with smoothening of the volatility. Therefore, it will be difficult to tell whether RBI will intervene or not.
Maybe more flows by remittances and export flows should start crystallising. They are now looking at these levels as attractive to sell dollar. There will be some dollar supply into the market and we should see a minor pullback in the rupee.
Q: Do you think this depreciation completely rules out the possibility of rate cut in the June policy? With the rupee condition, diesel gets more expensive. Therefore, it has the impact on inflation as well.
A: Essentially, with a rate-cut, the rupee should become weaker. However, in our case it does not have one-to-one correspondence. If global commodities like crude and gold, have shown signs of coming off, then the pressure on CAD is expected to remain a little subdued.
One argument for rate cut would be for seeing the inflation coming down and growth coming down. Also, this will be positive for the equity market and more equity flows will come in. Globally, there is a shift from fixed income to equity.
The rate-cut would attract more equity flows and FII investments into the country.