RBI will be reluctant to allow rupee to gain: Credit Suisse

Ray Farris, director, Credit Suisse expects the rupee to appreciate as  US Fed chaiman Ben Bernanke has witheld QE tapering for now. Speaking to CNBC-TV18, Farris said that the rupee is likely to trade in the range of 58-62 against the dollar and added that the central bank, the Reserve Bank of India, will be reluctant to allow the currency to appreciate too much.

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Below is the edited transcript of Farris’ interview to CNBC-TV18 Q: What is your sense about how the rupee might open and how it might trend in the near term? A: The rupee will open stronger as with most of the rest of the again currencies. We estimated it to be the second most sensitive currency in the region to treasury yields, so the rally in treasury yields will be positive. The other thing is the market is giving a lot of benefit of the doubt to the new Reserve Bank of India (RBI) Governor and sort of a belief that he will be a bit more hawkish and will re-anchor the central bank to inflation credibility. The way we think about the currency is stronger today, certainly on the general price action but we still need him to get tomorrow’s meeting right. Q: After the events that have transpired overnight as well as in the last ten days. Has the range for the rupee now moved higher? A: Certainly the range for the rupee has been higher and my guess would be that the central bank would probably be reluctant to allow it to appreciate too much. If we get the best of world, wherein global interest rate markets remains supportive; if the new Governor does a great job convincing market that he is quite credible; if the central bank can get inflation down, then I would think that it is quite possible we can go back towards 60 against the dollar. I would expect the rupee to be in the 58-62 range in the near-term.