Indian rupee fell to its 10-month low when it traded at Rs 56.22/23 per dollar in the morning.
Jayesh Mehta of Bank of America believes that the strengthening of dollar against major Asian currencies has been added to the rupee's woes. He said that because India has seen strong inflows, the extent of depriciation has been slow.
"If the flows would not have been there, we would have been at much higher level in terms of depriciation. We would maybe at around 57.5 kind of situation," Mehta told CNBC-TV18.
He added that India could be staring a situation of 58 per dollar very soon if the inflows stop and quantitative easing does not happen in US thus affecting the global flows.
Below is the edited transcript of his interview on CNBC-TV18.
Q: What is essentially making the rupee fall? Flows have been strong. Losses in the equity space are not that big either. So is it just a month-end dollar demand from oil companies that we see or is it just purely reactionary to global events with the dollar gaining against major Asian currencies?
A: It is the US strength which is really bringing the rupee down. Of course we have our own fiery problem. Nothing has changed really on that. It is only because of the flow, our extent of depreciation has been slower.
If the flows would not have been there, we would have been at much higher level in terms of depreciation. We would be maybe at around 57.5 kind of situation. The flows both in debt and equity have really slowed down the depreciation part.
The worry is if the flow stops. Right now there is nobody 100 percent sure about whether the flow will continue. That is I think really affecting our currency also.
Q: As you said if the flow stops rupee could fall further, so there is word of possibly 60 levels as well. There is talk of all-time lows. Are these real concerns at this point at least?
A: I do not know about 60, but 58 is a real concern. That is where we are expecting that liquidity continues. It all depends on whether the flow of liquidity continues then we would not be going that dramatically.
But if we did not have the flow or QE does not happen and tightening happens in US and the global flows get impacted, we would be in a situation of 58 very soon.
Having said that, I am not saying that this will move. 56.25 today was one level which people were trying to test. We heard some intervention.
We do know for sure that for the time being, it looks like it will not move much from here thematically; unless your fundamental changes, Current Account Deficit (CAD) improves. With the flows we are right now deferring the depreciation.