Unfavourable factors cut off RBI intervention: Nomura

Below is an edited transcript of the analysis on CNBC-TV18. Also watch the accompanying video. 

Q: What level do you think the RBI will now defend and what exactly took place in the market today?

A: Yes, I think it's very hard to decide on the level at which the RBI could potentially intervene in the market. There was some mild intervention on Thursday. There was an attempt to corral the rupee at 57, but the dollar’s strength today has negated all attempts. I feel that till the fundamental factors favour India’s growth, it's very difficult to see the RBI intervening strongly.

Q: The pace of today’s fall was quite accelerated.  Is there anything specific that you would attribute it to?

A: I don't think there is anything specific. There has been an across-the-board fundamental strength in the dollar today while some of the Asian currencies were weak. So rupee turned weak in line with these trends and worsened on a high current account deficit.

The weakness is likely to continue with oil prices significantly down and a fall in gold imports which are otherwise fundamentally positive factors. So the only reason for the strong plunge in the rupee can be attributed to the dynamics of demand and supply.

Q: In the near-term, what kind of range do you think the market should work with on currency?

A: I don't have a technical level in mind at this point in time. The level of 56.40, which was the previous high, was once broken in a accelerated move on the upside as expected.

I don’t think at this point in time I can point towards a technical level. The only thing that one can hope for, is some recovery in the global risk sentiment that could throw a corral around it.

There are reports in the market indicating RBI action by moving the oil demand away from the market into select PSU banks. These initiatives have to materialise before any call can be taken on where the rupee would take a breather.

Q: What steps do you expect the RBI to take?

A: Again it’s very difficult to come up with something material. I think the demand for oil is a factor which RBI could think about having the potential to impact the rupee. Beyond that, I think mild intervention on volatility is also the need of the hour.