Rupee’s underperformance against its Asian peers is likely to continue in the short-term due to India’s ballooning current account deficit, he told CNBC-TV18 in an interview.
The Indian currency has already hit life-time low of 59.93/USD and it’s just a matter of time for it to break through the physiological level of 60/USD, warns Mitul Kotecha, Global Head of Currency Strategy at Credit Agricole.
Rupee's underperformance against its Asian peers is likely to continue in the short-term due to India's ballooning current account deficit, he told CNBC-TV18 in an interview.
The Reserve Bank of India (RBI) will try to contain rupee's fall to 60/USD level. But, the central bank's intervention can only stop the rupee from getting weaker to some extent, it can't reverse the trend, he added.
However, he expects the rupee to see some recovery by the year-end.
Below is the edited transcript of his interview with CNBC-TV18:
Q: How are you reading the moves on the rupee and what is your near-term target on the rupee versus the dollar?
A: The moves are a reflection of the increasing US bond yields. There is also a reflection of capital outflows from emerging markets (EMs) and also that the greater vulnerability I guess for the rupee has because it is underperforming currencies due to the fact that India has to finance its external deficit. Also, the rupee is suffering because of capital outflows increased this financing becomes more difficult. In terms of targets, the rupee will break through this 60/USD level and we avoid it moving through there overnight but I think it is inevitable that it will go through there quite soon.
Q: What are the global thinking heads of Credit Agricole and your clients telling you, this meltdown in capitulation that we saw across EMs in fact across all markets is the capitulation over for now and we will perhaps see more relaxed or slower downward drift hereafter or do you think a lot more losses are to happen in global asset markets?
A: I think we are only part way through the adjustments. We may have seen the worst in terms of severity but there is no doubt that capital is continuing to flow out of the EMs. I think Bernanke this week was fairly blunt, he was less dovish than markets had anticipated. He is very clear about what the intention is of the Fed and I think markets are going to transition into a phase of Fed tapering and its transition is going to be very difficult.
READ MORE ON Credit Agricole, Rupee, emerging markets, Bernanke, current account deficit , CAD, RBI , FII
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