Fitch rating hits rupee; may touch 57/$ mark: Experts

The rupee weakened further on Monday to hit a near one-week low against the dollar after Fitch Ratings cut India's sovereign outlook to 'negative' from 'stable', but affirmed the country at 'BBB-', the lowest investment-grade rating. In an interview with CNBC-TV18, Moses Harding, Head Economic and Market Research, IndusInd Bank said the Fitch downgrade is putting rupee at risk and is leading the currency to test the recent all time low of 56.52 per dollar.

After the disappointments from the RBI and the Fitch downgrade, Harding is looking at 57-57.15 as a formidable target. For the near term, he believes the Indian currency would stick to a range of 55.50-57. However, Jamal Mecklai, CEO of Mecklai Financial says that though, the rupee is weak, it will not break the 57 per dollar mark. He further adds, "This level of lower than 55 is very attractive for exporters, in my view. I think there is no need to panic."

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

Q: How come the rupee found some kind of a support? The rupee went rapidly from 55.82 to 56, is it finding some support there? Would you say that there is some Reserve Bank kind of dollar supply?

Harding: I think the double impact of the RBI shocker and the Fitch downgrade is putting rupee at risk or testing the recent all time low of 56.52. I think importers are worried because they were looking for a bit of correction below 55. But the correction stalled. There was not enough opportunity for importers to hedge during this move from 56.50-55. They should be afraid and they should come in a hurry. I think 56.52 is at risk.

Q: Is there any RBI action at all in the markets in the last 5-10 minutes?

Harding: As of now, nothing is seen. But RBI has intimidated to the market that the operation with oil companies will be discrete. So, they will ensure that oil demand does not hit the market for the next couple of days. There will be some kind of normalcy restored.

Q: This information came to bankers?

Harding: Last week there was an announcement by the deputy governor that activities of oil companies will be kept discrete and not informed to the market, provided rupee rallied to 55.

Q: This is a double whammy coming in for the markets. First S&P puts us on rating watch, gives a negative rating to the investment grade outlook, follows it up with a letter to investors which didn't mince words at all and now another rating agency puts us on negative watch. Do you think that we have got a lot of downsides to the rupee?

Mecklai: I am in Vence so what do I know? But what I do know is that I don't think what the rating agencies say in general is of any value. I think all the information is on the table. The rupee is wobbling around, it's weak, it's under pressure but I don't think 57 will break. A lot really depends on how Europe plays out. Things are a little difficult on that side but I think right now we just got to hold it a little steady.

There is no way of telling because Europe is a big risk but my sense is that in Europe, people are too frightened to fall over the hedge. So things will stabilize. If they will stabilize there, they will stabilize here. The S&P or Fitch, I don't pay too much attention to them. That's just a wobble and I wouldn't worry too much.

Q: Do you think that 56.20, the prevailing low of the rupee will be protected? Will the currency put up a fight over there or do you think that could be quite easily taken?

Harding: I think last week I was looking at 56.57 as top heavy for the dollar-rupee and I was also saying that it's very risky to stay long on dollars, but that was based on my expectation of RBI shifting to growth supportive stance, which will attract the external flows. Now that the RBI has disappointed and Fitch has also come in, I think I will look at the next target of 57-57.15, which is formidable. So I will shift my range to 55.50-57 in the near-term.

Q: If an investment grade rating were to actually go and one of the agencies puts us into a speculative or junk status what could be the upshot? Would it be far more serious than what it was in the pre 2005 period when we were anyway junk?

Mecklai: I think you can't really compare it with different times. In 2005, 2008 everything was so unique. The point is, if it were to start falling, I am pretty sure Reserve Bank would come in. This level of lower than 55 is very attractive for exporters, in my view. I think there is no need to panic. Panicking is not what it's about, you need to calm the market in my view.