Rating action triggered Re fall; eyeing 57.75/$: Axis Bank

The Indian currency today dropped to a new lifetime low, falling below 57 to the dollar on high demand for the greenback. According to Ashok Gautam of Axis Bank, this move was triggered by rating action taken yesterday by Moody’s on several US and European banks.

“Yesterday’s rating action probably triggered the demand build up in the market and the one way move is a result of limited supply,” he explained in an interview to CNBC-TV18. While analysts were eyeing 57 per dollar levels, no one expected to see it arrive so quickly. “I am also surprised since yesterday because the kind of move which we have now seen is really sharp,” said Gautam. From here on, the next level that Gautam eyes is 57.75 a dollar. Also read: Is the rupee depreciation growth positive? Below is an edited transcript of his interview with Mitali Mukherjee. Also watch the accompanying video. Q: Are you getting the sense that there is a bit of a panic element in what’s happening with the money market today? A: I wouldn’t use the word panic. What we have been seeing is continuous demand in the market since this morning, probably triggered by yesterday’s rating action. That has really seen the dollar demand continuously building up in the market and what we have been seeing is that there is rather limited supply. So the one way move is a result of that. Q: Just this morning traders were talking about the possibility of the rupee getting to 57 a dollar, which it has. In the near term, what kind of levels are people talking about? A: We were saying yesterday that 57.2 could come, but I think it has come rather soon. Now it’s all unknown territory for the rupee, but certainly the next level which we’ll be keenly watching will be 57.75 a dollar. Q: Is it just a demand issue at this point or are you beginning to hear any kind of fund outflow pressures as well, because that's something the rupee has not had to deal with yet? A: We'll have to see as the day goes what all factors have contributed to this dollar demand. But one thing is certain that the sentiment per se is against rupee. We have seen senior RBI functionaries saying that there should not be any emotional attachment to a certain exchange rate, which people took as a signal that they will not really mind a weaker rupee. But having said that, I am also surprised since yesterday because the kind of move which we have now seen is really sharp. I was only hoping that 57.20 will be capped, but it looks like that we will now see further weakening. Q: So you are ruling out any RBI intervention because it came in in a short measure yesterday, atleast it was close to pull the money market back? A: The RBI keeps coming off and on, but they don’t come through our bank so I have no first hand information to tell you. We hear from the market that they do keep coming in the market as and when they want and probably later on we will come to know that at what levels they were in.