The woes of the Indian currency fail to cease. With every passing trade session, the rupee touched new lows on Tuesday and reached a record low of 55.38 to the dollar, down 35 paise from the previous close of 55.03 a dollar.
In an interview with CNBC-TV18, Pradeep Khanna of HSBC banks says that it is astounding to see the rupee at a fresh low. But, he also does not expect the RBI to come up with a magic wand and turn things around. Khanna believes that the RBI will only take incremental steps to correct the weak rupee. He also does not see any meaningful capital flows into India.
Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.
Q: What's going on in the market? 55.30, that's something which one wouldn't have expected to see this morning?
A: Yes that is true. I think fairly astounding. But, over the last two or three days, even if there is a relatively risk-on sentiment in the morning and even if other currencies do recover a bit of lost ground, the rupee seems to be an extremely temporary phenomenon lasting not more than maybe an hour or so. That’s what we have seen again today.
I would think, one can only put it down to very genuine demand going through for actual import payments because we don't see that much being hedged out at this point in time. I think there is very heavy buying for import payments.
Q: What are the exact measures that you are expecting to hear from the RBI because so far whatever they have done has not really worked?
A: Yes, I think it is probably a little bit unfair to expect RBI to come out with a magic wand measure which is going to immediately turn things around. Probably, as they have been saying and what they are going to keep trying to do is to take incremental steps, which can possibly takeaway a little bit of speculative demand, bring in a little bit of supply etc.
They have to hope that the government at some point is going to help them out and make some policy decisions, which are also going to improve the attractiveness of the country as an investment destination. Then at some point the rupee would have weakened enough to make the assets look cheaper in dollar terms, but I think it is probably foolhardy to expect that they would come out with one single measure that is going to turn things around.
Q: Is it the supply of dollars in the market which is leading to the rupee underperforming some of its peer currencies?
A: Yes, I would definitely say it is. Exporters have for a little while now, based on which company they are from, have had some kind of a board level mandate as to the percentage of exports that they would like to hedge. Clearly, as things have gotten more negative, I don't think anybody is really looking to up the hedge ratio. Some guys might even be looking to take it down a little bit or just maintain it where it was.
I think it's fairly clear that there is no real hurry with exporters to go ahead and start hedging large quantities, nor is there any particular target level that they are looking to achieve before they start hedging in big quantities. Export hedging, I think, is just bits and pieces and that probably happens almost everyday at various levels.
It is insufficient to take care of the demand that one is seeing, which is very much in line with the current account deficit where we are not seeing any capital flows of any meaningful nature.
Q: 55.32 on the rupee now. If this short rupee trade has become crowded as many people are expecting and if we do see a pullback, to what level are you expecting it to go? Basically, what is the floor and the support that you would expect for the rupee to stay at from here?
A: I think 54.30 was the intraday low we saw last year. After we have gone through that there was a little bit of consolidation around a 54.50 level before we moved up and have gone relatively easily through 55.
Looking at that I would say 54.30 to 54.50 is probably a very decent kind of support to look at if there is going to be a pullback at some point.