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Jun 21, 2012, 12.54 PM IST
The rupee fell to as low as 56.49 in early trade, just off a record low of 56.52 hit on May 31. In an interview to CNBC-TV18, Anant Narayan of Standard Chartered Bank says, the mood is pretty somber. "Is the market clear that there is something to stop it going to 58 or 60? No, it is not. So that cannot be ruled out as a possibility," he adds.
The rupee fell to as low as 56.49 in early trade, just off a record low of 56.52 hit on May 31. In an interview to CNBC-TV18, Anant Narayan of Standard Chartered Bank says, the mood is pretty somber. “The somber mood will remain. Is the market clear that there is something to stop it going to 58 or 60? No, it is not. So that cannot be ruled out as a possibility,” he adds.
Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Also watch the accompanying video.
Q: There should be pressure, when there is a risk-off day, but why is it exacerbated for India vis-à-vis others, when crude is falling?
A: Over the last couple of days, things have improved from risk-on perspective globally. Oil is lower, euro is probably higher, and the dollar is a little weaker. But ever since the credit policy, we have weakened quite sharply, without any obvious keys coming either from the stock market or the global context. So, yes, the mood is pretty somber. Reality is that even if the global system goes through a risk-on period, we have a huge current account deficit, no wishing away that number. Going by last year’s numbers, we have a current account deficit of about USD 70 billion. That is about USD 6 billion a month. So, we need that much amount of capital flow coming in every month just to stay at the same place. That money comes in only when you have a growth story going through.
India is a growth story based economy for all of its macro factors whether it is the balance of payments, whether it is the fiscal deficit. At the moment, clearly there are questions surrounding the growth story. So, I guess that somber mood will remain. The market probably is not very clear as to whether there are any speed arresters on the way to ensure that rupee doesn’t go completely out of whack as it has over the last one year.
Is the market clear that there is something to stop it going to 58 or 60? No, it is not. So that cannot be ruled out as a possibility. So, I think the proclivity, at the moment, remains weak, until we see some good news coming out either on the policy front or maybe on the global context. A lot of events are coming up over the next coming weeks.
Q: Which currency do you think that we are tracking most closely globally? At one point in time, we used to track the euro then it was the Korean won. What exactly is the closest currency that we have a correlation with? What does the correlation standard at this point in time?
A: There is a very nice presentation made out by the governor yesterday. That actually tracks the rupee’s performance against other BRIC countries, the Brazilian real etc. I think the fact remains that India has got its own unique story as do many other countries. It’s frankly not strictly correct to compare ourselves with Brazil which is a resource exporter. Russia is a commodity exporter as well. We have our own unique set of issues. Some of it is domestically made, some of it is because of international issues. Looking at a comparison doesn’t make too much of sense.
Our immediate problems are pretty severe. One would expect that a weaker rupee would mean exports go up, imports go down, capital flows come in and therefore we find some kind of a balance. But our real problem remains that imports are reasonably sticky and inelastic. There is a point of reflexivity that at a certain point in time, given our foreign currency debt, if the rupee weakens too much it actually changes the fundamentals of the country as well. So, there is a whole host of factors going around here, all of which are pretty unique to the country. Comparisons with other currencies are a little academic at this point.
Q: Who is buying today? Is it really oil companies? Is it people who are paying back FCCBs? Who is providing the demand and what’s on the other side? Are you seeing any exporter sales at any level would 56.5 bring them in and is the RBI there?
A: We will see the net current account deficit coming through everyday. A lot of it is actually a fairly smooth imports exceeding exports kind of situation. In the earlier years, when we had better times, clearly we had capital flows, which more than made up for that. The fact remains that in today’s somber mood we don’t see exporters wanting to call a top on dollar-rupee. We aren’t sure if it stops here or if it goes to 58 or 60. So, they aren’t sort of rushing in to try and book there and lock-in on their exports.
Capital flows clearly are waiting on the sidelines because the growth story isn’t really taking off. There aren’t fresh projects being inaugurated for money to come in and fund that. So, investments are at a slow ebb. So, no real surprises as such. There is going to be an outflow on net basis everyday. Either the RBI has to provide the gap between the time now and when the capital flows actually start to come in or we go through a slow grind as we have been going.
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