Rupee ends @ 15-month low

Rupee extended its southward journey deeper into the 43 rupees per USD territory after Reserve Bank of India let the Indian unit fend for itself on that grounds that it was mainly offshore arbitrage demand, and not local importer demand that was dragging the currency down today

The spot rupee closed lower at Rs 43.33 per USD as against its previous close of Rs 43.03.

The widely traded 8.24%, 2018 paper ended lower at Rs 96.65 as against its previous close of Rs 97.03.

Hitendra Dave, Co-Head, Global Markets, HSBC spoke exclusively on CNBC-TV18:

Q: What do you attribute this new low for the rupee - the new 14-month low or thereabouts for the rupee and where do you see it headed?

A: It is a combination of the weak equity markets. Most people have reconciled now to the fact that we aren't too much of portfolio inflows. One had the negative data or not so positive data on the trade for the month of May and there is significant gap between the onshore levels and the offshore levels. A combination of these three things plus an overall negative sentiment on the India macro story and with Reserve Bank (RBI) not being there, not seem to be there today in any meaningful manner.

One has therefore seen it slip fairly rapidly and so long as the arbitrage remains, economically made to you, will always have bids in the market here.

Q: How do you advise an importer and exporter for the next two-months or so? Where would you see the rupee at the end of this quarter for instance?

A: Any variable is now taking a more a view on the India macro story as well as in the oil. Oil is very important. One is getting a sense that there is almost nothing, which can stop oil from going higher. So, if oil continues to go higher and India's macro story in terms of inflation, trade deficit, fiscal deficit continues to worsen, then it is difficult to see how capital flows will come back into the country.

There have been a few welcome FDI announcements in the recent past but by and large one would say that RBI would perhaps slowdown the pace of depreciation. But in the current context of a widening trade deficit, reversal of capital flows and no large inflows and with arbitrage that is there between onshore and offshore, it could actually go about a percent or percent-and-half from here still.