Libya peace talks to strengthen rupee: Axis Bank

In an interview with CNBC-TV18, RVS Sridhar, Senior VP-Treasury, Axis Bank, speaks about the rupee and gives his outlook going forward.

Below is a verbatim transcript of his interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy. Also watch the accompanying video. Q: What explains the dollar getting cheaper, when crude or Brent is USD 115 per barrel plus? A: The issue is beyond the flows that we are seeing. I think there have been some large flows, which have come into the markets, that is what seems to have driven the dollar rupee lower. You are absolutely right that with the oil price is moving up, really we cannot have the dollar-rupee coming down. It would be a very surprising behaviour. Q: The other point that has intrigued me and I seemed to be alone in this is that the oil import bill has been falling, actually contracting on a year-on-year basis. Both in December and in January, it fell by about 10 or 11% in both months. My private channel checks indicated that in third quarter the cane oil output rose from 110,000 barrels per day to 125,000 barrels per day. Is that the sole reason why we are seeing the oil import bill fall here on your terms for two consecutive terms and that will mean that we can take this Brent price surge with a little more muscle? A: About the extent of production, I think I must confess I am not aware. But the point to be noted here is the oil bill for India is dependent on a mix of Brent and some Dubai crude. That being the case and given the disturbances, unless those disturbances come off, we cannot assume that the oil prices are going to fall. Now, regarding the extent of our import bill, India has also been exporting oil for sometime. So, if someone is measuring on net basis, it's likely that our net bill is actually lower than what we look at in terms of gross and also great deal of re-exports from India. Q: Would you say that the peace bugle in Libya would give the rupee enough strength to perhaps make the dollar cheaper than 45? A: The lower number might be about 44.80. We are expecting our gross domestic product (GDP) to grow in this manner. Obviously, we will have to grapple with this issue of our current account deficit. The fact remains that we are completely dependent on inputs as far as the growth is concerned that being the case, unless we really get our capital account in order, the pressure on dollar-rupee will always be there. You might have some lumpy floats for coming in from time to time and that could take the dollar-rupee lower, but the fundamental pressure will keep it at a certain level. Q: The market doesn't seem to be worried about the current account deficit at all. It has actually preceded Dr Rangarajan in expressing a certain confidence that the current account deficit will narrow. It narrowed unusually in December to USD 2 billion and we thought that that was one-off. But even in January at less than 8 billion dollars, it's a far cry from the 13 billion that we are recording in August and September. So, clearly the current account deficit issue seems to have been overblown by the numbers we saw in August and September and with the exports rising what 35-36% in December and January, is that the market reading it correctly? A: The market is definitely looking at these numbers, there is no doubt. My sense is more from a long-term prospective, you need a little bit more confidence in the numbers that these are sustainable. An export growth of 36% is very high, to have this on a regular month on month basis is a great piece of news. Regarding the current account deficit, yes, if you have a lot of months where the deficit is may be 8 billion or 10 billion, people will forget the 13 billion very quickly. The other thing is of course then also we hope that the budget has opened some window on the FIIs side.