See rupee stabilising in 62-64/USD range: Bank of America

Jayesh Mehta of Bank of America expects rupee to settle in the range between 62-64/USD on back of measures announced by RBI like the FCNR (B) window, RBI providing dollars directly to state oil companies etc. He sees around USD 18 billion coming in on back of some of these measures.

He also feels that the direction of the rupee could be determined by the tapering amount to be announced by the Fed. "If the guidance comes quite hawkish, you would see some sell off in emerging market and that could get stretched back to 66-67/USD maybe but at this juncture the probability looks lower,” he adds. Also read: Markets globally will fall in sync on Fed tapering: UBS Below is the verbatim transcript of his interview on CNBC-TV18 Q: There has been some amount of stability which seems to have seeped into the rupee, is there more evidence with the fact that there wasn’t any sort of dynamic move or correlation in the past couple of instances with the 10-year rising to 2.99 ahead of the non-farm payroll (NFP) data as well as going down to levels of around 2.85 and no dynamic movement in the emerging currencies possibly substantiating the fact that there is some semblance of sanity set in? A: We do feel that the current 62-64/USD range is what the rupee should settle in. So it is like you had US dollar weakening against the expectation of Fed tapering coming down to USD 10 billion or so. Apart from that what we did here, that is getting the oil companies directly to RBI, allowing FCNR(B) window etc. We expect to bring in around USD 18 billion or so. I think because of these measures the rupee has kind of stabilized or maybe it is consolidating ahead of tomorrow’s big news. So maybe the market is kind of range bound for today, tomorrow. Q: In the unlikely event of a collapse in emerging markets post the FOMC decision, the currency maybe goes back towards 66-67/USD, how high would a risk like that be? A: One is of course the tapering amount, second is also the FOMC guidance. If the guidance comes quite hawkish, you would see some sell off in emerging market and that could get stretched back to 66-67/USD maybe but at this juncture the probability looks lower, you never know so it is like wait and watch. If you look at bond and currency market people are light ahead of tomorrow’s announcements. So, to that extent, there will be damage but it will not be that larger damage hopefully. Q: Is there a case of scaling back some of the July 15 tightening measures, which were undertaken by the RBI come the September 20 policy? A: It will definitely depend on tomorrow’s announcement. At this juncture, money market is tight and that is one of the reasons, they did not announce further marginal standing facility (MSF). They may do it but not immediately and even if they do it, it will be just a token - maybe bringing the 10.25 percent to 9.75-9.25 percent. But that would be only if there is some positive news on tomorrow’s announcement.