Rupee relief temporary, recovery far away: Credit Agricole

The underlying pressure on the rupee is not over yet, believes Mitul Kotecha, global head of currency strategy, Credit Agricole. Kotecha adds that the Indian currency is merely taking a breather after the sharp volatility seen in the past few days.

Speaking to CNBC-TV18, Kotecha adds that the rupee will take a long time to regains its lost strength.

“For now the stability also reflects the global stability. You may see a little bit of improvement in risk appetite generally. Equity markets globally are higher and that is helping the rupee from a risk perspective. I think there is a long way to go here before we see any real sustainable stability in the rupee,” reiterates Kotecha.

Below is the edited transcript of Kotecha’s interview to CNBC-TV18.

Q: Is it that 65-65.50 is seen as having fallen enough for the moment? Is there an abatement of dollar buying pressures?

A: I think there is certainly a lot to digest for Indian rupee investors and participants in the market. The measures from the Reserve Bank of India (RBI) and the volatility this week has been fairly substantial and I think we are at the end of the week pausing somewhat. It does not mean the pressure is over by any means, but I think market is just taking a breather here after the volatility that we have seen in recent days.

Q: Anything that you have picked up today in terms of dollar supplies coming from the RBI or is this something that the market has been able to find its own feet without the regulator stepping in?

A: There has been talk of some market activity by the regulator, but it is certainly difficult to see whether that is actuality or just talk. For now the stability also reflects the global stability. You may see a little bit of improvement in risk appetite generally. Equity markets globally are higher and that is helping the rupee from a risk perspective. The market is digesting many different measures seen which are helping to some extent. I think there is a long way to go here before we see any real sustainable stability in the rupee.

Q: Yesterday and for the past several days we have seen selling numbers on foreign funds, not a whole lot, but yesterday's numbers were a little eye-popping. Do you think that the rupee could come under strain as funds start exiting even more when the tapering actually sets in?

A: I think there is certainly a concern here for currencies such as rupee which are more vulnerable because of the external deficit financing requirements. As the tapering begins, we probably will see more capital flow out of emerging markets (EM) and particularly Asia where we have seen a substantial outflow of capital. However, I do not think we have already seen much of this flow taking place. The market has been pricing in tapering. Once it happens, yes there will be more outflows, but I do not think it is going to be a huge increase in pressure, because I think a lot of this now has been priced in. Nonetheless, Indian rupee is more susceptible to these outflows because of these financing requirements.

Q: Are you also in the Rs 70/USD camp?

A: At the moment, we may see a bit of short-term stability. The pressure is certainly not over, but I don’t think we are going to see a rush to 70. We have already seen a big move in the rupee and the market going forward will be wary of further measures by the RBI and the authorities to arrest the decline in the currency. So, while there is not a more short-term downward pressure, I would not look for a plunge in the currency from the current levels.