See rupee in 50-52 range in near-term: ICICI Bank

Shilpa Kumar, head of treasury at ICICI Bank sees the Indian currency in 50-52 in the short-term.

Below is an edited transcript of her interview on CNBC-TV. Also watch the accompanying video.

Q: What is your own sense of the rupee’s trajectory? There is ofcourse this staring current account deficit which requires about a billion dollars to cover the deficit on a weekly basis, a lot of people are talking about 54. Do you think it is getting there soon?

A: In the short-term, rupee will look to range between 50 and 52. Current account deficit is driving a lot of this. Equally, what balances this current account deficit is capital inflows into the country. If you ask me what are we are looking at in terms of as the triggers for keeping the rupee between 50-52, I would say right now capital flow is very muted, not seeing much action either on the FII front because of investor and policy concerns.

Growth and policy concerns of a different level are also keeping the rest of the capital flow situation somewhat muted. But at the end of the day, you do see supply coming in maybe through the Reserve Bank of India (RBI) on spikes. Therefore, unless something significantly changes, we do expect the range to stay between 50 and 52.

Q: Do you expect the RBI to intervene every time the rupee goes beyond that 52 mark in order to protect it?

A: Not really, I was talking more on broader sense. Where will supply of dollars come from? Let us look at what are the two natural supply points for the dollar, one is the capital flows, the other is the exporter flows. If you look at what has been happening on the exporter front ever since new regulations came into place in December, exporters are not taking very long-term views on their dollar sales because of the way the regulation is framed.

What is then the natural point of supply for dollars to come in? I think the RBI has stated its intent that when there are spikes, they will come in. So, I am not saying every time it breaches 52, they will come in. But pretty much we expect the range, given the balance of demand and supply, to stay in this 50-52 range.

Q: So advice to exporters at this juncture would be to take advantage of any moves towards 53, right?

A: We put it a little differently. I would say right now the global situation is so uncertain and even the domestic rupee situation is so dependent on policy actions that rather than attempting to take a view on any of these, I think exporters should just follow a very steady hedging policy, which protects their own margins.

There are various instruments available. There is the forward market, there is a vanilla option market, maybe also the ability to buy a range within which they protect themselves, if permitted by regulation. Therefore, they can look at all of these instruments and take a view on which of the instrument looks best at this point of time.