Rupee will continue to be under pressure: Deutsche

Sameer Goel, head of Asia Rates & Currency Research, Deutsche Bank believes the government’s focus to contain the current account deficit is a healthier approach though its timing may be mismatched. According to him, the market is hoping for a game changer in terms of a big one-off move like a sovereign issuance.

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In an interview to CNBC-TV18 he says a lot of measures are moving positively towards reducing the imbalance between where the current account gap is and how much financing is available.
Meanwhile, Goel believes the rupee will continue to be under pressure, but that is unlikely to be the key focus point now. Below is the verbatim transcript of Sameer Goel's interview on CNBC-TV18 Q: What have you made of the controls on individual remittances and corporate remittances that the Reserve Bank of India (RBI) announced, also further tightening on gold import rules and gold duties? Will all this mean that we could have a good day for the rupee and the week ahead?
A: I will make three quick points as far as the rupee is concerned. One, the government is now focusing a lot more on containing the current account and that is definitely a healthier approach to the situation. There is a timing mismatch and the market is hoping for a game changer in terms of a big one-off move like a sovereign issuance.
The government has made it clear that while the priority remains for rupee stabilisation, they believe much more is going in for an incremental process of adjustment through a lot of initiatives that we have spoken about. To that extent, for anybody trying to look for some groundbreaking policy pivot in the currency, they are going to be disappointed.
Bulk of adjustment in the rupee arguably has already taken place. It does not mean that depreciation pressure is going to go away immediately, but from at least it makes a lot more sense to focus on what are the spillovers from a lot of currency measures that the government is taking. Whether it is in terms of inversion of the yield curve which looks like the government will have to stay with for a while, what does that mean for domestic financing equation or what does it mean for the equity market.
It is going to be more focused and the possibility that you see a negative feedback loop from there to the currency rather than directly the currency itself. The measures are certainly positive as far as their impact on balance of payments (BoP) is concerned. Q: Is there any one foreign institutional investor (FII) who thinks that he cannot take back his money? With regards to inverted yield curve, do you think that might scare away long only equity funds and we could see that getting negative?
A: Unfortunately, I am the wrong person to answer both these questions. Some of the measures that have been taken certainly restrict the ability to move across the capital account, but they have been largely restrained to the ability of domestic residents to be able to take their money offshore. I do not see any reason to immediately worry about the ability of foreign investors to be able to repatriate their money back.
As far as second question is concerned, again I am no equity expert but everything which has come out from the authorities, both the government and the RBI so far, make it fairly clear that the priority is very much with rupee stabilisation. If that requires help of an inverted yield curve for the next few months then that would be the case. To the extent, that spills over into maybe lower demand for bonds or maybe impacting growth in credit and so forth into equity valuations then that would happen. Q: How do you see the rupee move? Do you think the RBI now has a fighting chance to hold onto the rupee at that 60-61/dollar mark? Before these measures there were so many expectations doing the round of 65/dollar as well. What range are you holding onto now?
A: The problem with the rupee flow is that a lot of measures are moving positively towards reducing the imbalance between where the current account gap is and how much financing is available.
The one thing positive is that the measures are no longer just focused on trying to insight offshore investors to come in and buy local assets, but it is spreading out to issues like quasi-sovereign issuance, offshore which will atleast have higher chances of being able to bring dollars in and be able to balance the dollar flows.
There is a timing mismatch here. You already have a gap and you might not be able to get the financing so quickly. So, the rupee will continue to be under pressure, but that would probably not be the key focus point now. Q: How do you expect the rupee to open today and what might be the range in the near-term?
A: Dollar-rupee will definitely open higher this morning with the general dollar trend that we are seeing. In the near-term we will see the pressure of taking away the highs on dollar-rupee which we have, but again I do not think the pressure will be as high, given all the new measures that have been announced this week.