Rupee breaching all-time low of 61.80/$ unlikely: StanChart

Ananth Narayan of Standard Chartered has given his vote of confidence to the Reserve Bank of India's (RBI) measures on the rupee by saying the currency hitting its all-time low of 61.80 again against the dollar is unlikely now.

"The action since July 15 and the words, which have come in from the ministry, clearly indicated the authorities are watching it extremely carefully. So purely from a sentiment perspective and from a market confidence perspective, I think the often talked about line in the sand is now there again," adds Narayan.

Also read: Rupee will strengthen today; 60.20/$ likely: DBS
The RBI will be auctioning Rs 22,000 crore of government cash management bills every week, it said in a statement, without specifying for how many weeks the sales would last.
Narayan expects the RBI to announce more policy reforms if the rupee starts showing signs of weakness again. Below is the edited transcript of Narayan's interview to CNBC-TV18. Q: How would you react to latest measures by Reserve Bank of India (RBI)? How do you think the move on the rupee will look like?
A: It continues to buttress the fact that the RBI is watching the rupee very closely. The action since July 15 and the words which have come in from the ministry clearly indicated the authorities are watching it extremely carefully, so purely from a sentiment perspective and from a market confidence perspective, I think the oft talked about line in the sand is now there again.
One expects that the RBI will intervene in some form or the other with some policy actions in case rupee starts showing weakness again. So, hopefully the runaway weakness that we saw since middle of May will not repeat itself. Q: Is this strength in the rupee due to what the RBI did or because of anticipation of what the government will do? In any case what are you expecting? What at all can they announce later today or tomorrow?
A: It is both. The fact that the RBI has reiterated its stance and clearly is interested in controlling the rupee obviously is a positive for the rupee sentiment. In addition, there are additional steps expected by the market, both from the RBI as well as from the ministry.

There are some short-term steps which people are talking about; one is the possibility of enticing more Non-Resident Indian (NRI) flows, maybe easing up on the External Commercial Borrowings (ECB) front, maybe some measures on the Foreign Direct Investment (FDI) front which will again help on a sentiment basis even if it does not translate into immediate flows.
All these are short-term sentiment boosters which will impact and give confidence to the market, buy time for more medium-term and long-term steps to take place and those medium-term and long-term steps clearly have to be on two fronts- the Current Account Deficit (CAD) itself and on the growth prospects, particularly with the stuck infrastructure prospects.
On the current account, I guess what the market will look for is measures to control imports and measures to ensure that the improvement we have seen in the June trade deficit continues going forward as well. One which we are talking less about is one of the growth front.
They need to ensure that these stuck infrastructure projects start again, so that the growth story into India remains and returns. We have got to break it up in two parts, one is short-term sentiment boosters which buys the time for us to implement these more medium-term long-term measures. Q: What is the range you are looking at? How would you trade it for the day? How would you trade it for the week? What is a slightly longer-term, a two monthly, quarterly range?
A: In the short run, personally I do see a lot of intent from the regulators and to that extent, I would not expect a runaway depreciation. The last low that we saw on the rupee of 61.80 should hold and we should trade on a softer basis for dollar-rupee. The fact that dollar is showing some global weakness also helps and that should aid the short-term sentiment.
In the more medium-term, 2-3 month or longer horizon, it frankly depends a lot on the steps taken to control CAD and the steps taken to bring back growth into the picture altogether, particularly with the infrastructure projects.
Hence, the steps taken to control CAD would definitely help and if we can get some way forward on the infrastructure projects, that would help as well. A lot therefore depends on steps in the medium-front.

Q: What about the bond yields? They have come down from that peak of 8.5 percent that we saw in the last week of July, now trading around 8.1 percent or so, but how do you see the bond yields react to this slew of measures?
A: I think the bond market anticipates that short end rates will be kept high until such time that the rupee stabilises. So, we are seeing this phenomenon of rate inversion which I guess will remain for a while, but if one has noticed, the 10-year bond yields are still behaving themselves.
The short-term steps which were announced by way of increased cash management bills probably gives some room to the government to actually reduce the auction sizes in the longer tenure bonds. I think the market expects that this inversion will continue. 8.5 percent on the 10-year should be a good level which should not breach where one will see long-term investors both on the retail as well as on institutional side come in. Short-end rates could be a problem though, particularly with this large supply expected on a weekly basis we could see double digit short end rates continuing for a while, but hopefully that is a three-month story rather than a long-term story.