See rupee in 56-56.75/$ band; yields to be subdued: BofA

"Till we see an all out action by RBI, we will still be 56/USD, maybe 55.50/USD but not more than that. So, unless we see some major action happening that is where we have to look at," he elaborated.

Meanwhile, he sees bond yields remaining subdued on the back of falling crude prices. He sees both the new 10 year bond and the old one moving sub 8% in six months time frame.

Below is the edited transcript of Mehta’s interview with CNBC-TV18. Also watch the accompanying video.

Q: What is bothering the rupee, we have not seen any major changes in the euro or the dollar index but the last couple of days have been quite bad for the rupee dollar?

A: Yes we haven’t seen any changes there; we haven’t seen any changes even after yesterday’s Fed meeting. We haven’t seen any changes in Asia too. Rupee is the only thing, which is going against the global situation. There is still lack of any guidance people were expecting large action post Greece.

Now after the policy, we think the large action would come only if the government does something on reforms, so it’s more like wait and watch.

We are just drifting and chasing our range. Earlier 54/USD was capped, but then the range is 55-56/USD till the Greece situation gets resolved. Now people are looking at range of 56-56.75. Hopefully by month end, we might see some exporters selling, but till we see any clear direction, we just keep on trading the range.

Q: As you said the fall has been tied in with what happened on the Credit policy day and it is the one thing that RBI wouldn’t have wanted to see, do you expect now, is the market at al talking about intervention from the RBI because of how much the rupee has fallen or it is still going to be a hands off approach?

A: We thought they would do a speed breaker intervention and not really all out. Normally if you look at the past, when they have all out intervention they come really hard. This time around we haven’t seen them coming hard.

We thought they would wait for Greece, then Greece passed, then the policy and now it looks like they would wait for the new Finance Minister. If there is any reform or structural change happening only then they come out aggressively all way out both on rates and foreign exchange.

Q: If this is your call in terms of the range for the rupee what kind of strength would you expect to see in pullbacks for the currency?

A: Till we see an all out action by RBI, we will still be 56/USD, maybe 55.50/USD but not more than that. So, unless we see some major action happening that is where we have to look at.

Q: Bond yields, the benchmark now went up to 8.16% post policy but it has reverted in that 8-8.01% band, do you see it being anchored there till the July policy?

A: When we look at bond yields we have to look at both the 10 year, new one which is at may be 8.06% today. That will be a benchmark after couple of more auctions. Right now just one auction has happened. If you look at old 10 year which is around 8.35-8.38% levels that has actually retraced, it went up to 8.45-8.50%.

After the US situation and particularly looking at oil today, it has come round to 8.35-8.38% levels. We maintain that trajectory is going lower, you might have turbulent time in between, but in six months time we are looking at both new 10 year and old 10 year moving almost sub 8%.