In an interview with CNBC-TV18, Ananth Narayan of Standard Chartered Bank said that the fall in Chinese Yuan and the appreciation of the US dollar index won't impact the Indian rupee much as the Reserve Bank of India (RBI) has ample dollar reserves to tackle any volatility.Below is the verbatim transcript of Ananth Narayan’s interview to Latha Venkatesh on CNBC-TV18. Q: Should we worry that the dollar Index has surged so much, the Yuan has fallen will there be any jitters in the rupee market? A:
I don’t expect any kind of strong jitters as such, but the fact that the dollar Index has strengthened and the fact that the rupee is overvalued on a real exchange rate (RER) basis does indicate that a gentle depreciation of the rupee over time is in order. We must remember though that Reserve Bank of India (RBI) has ample reserves and ample war chest to actually combat any kind of volatility. Some amount of gentle depreciation as indicated by the forwards market would perfectly be in order. Q: The outflow of the foreign institutional investors (FIIs) and the strength of the dollar is coming at a time when the foreign currency non-resident (bank) FCNR (B) deposits will start to flow out and goodish bit is still unhedged. So, can it be a rapid fall what are you looking at? A:
This FCNR B itself has caused a bit of confusion in the market. It is not as if the market is unhedged and needs to buy dollars to deliver the FCNR B dollars. The RBI has contracted to deliver dollars to the banks who in turn will repay the depositors. An RBI has plenty of dollars in its coffers to make good those payments. There is absolutely no problem, in fact the RBI has taken early deliver of its past purchases of dollars and it has forward purchases of dollars as well. So, it has ample amount of dollars.
Now what could happen is it still has some dollar purchases to go through in the market. Now on the other side if exporters don’t delivery those dollars you could see a situation where there is a temporary mismatch and banks need to borrow not buy but borrow dollars. Now that by itself could cause some volatility in dollar rupee but that should be very short-term and temporary.
Clearly, the RBI has indicated that it will manage the entire FCNR repayment very closely. In fact the repayment is already on going and frankly we haven’t noticed anything going through the foreign exchange market, so I think it is well managed by the RBI so far. It is a complicated story on the FCNR B including rupee liquidity and dollar liquidity, but by itself it should not cause any too much of a concern on the market.