Yen swap to enthuse mkt; RBI to keep rupee at 65-67/$: DBS

The recently announced India-Japan currency swap is likely to give a much-needed boost to the Indian equity market, says Arvind Narayanan of DBS Bank.

The Indian and Japan government last year had announced the swap worth USD 15 billion, which was today enhanced to USD 50 billion today in the G-20 summit.
Narayanan adds that the Reserve Bank of India will now be looking at a level of 65-67 against the rupee for the next few weeks.
"These moves on the currency are probably short-termed euphoria of Dr. Rajan’s announcement. The market is slightly happier and confident about what is happening. But I do not think this is a sustainable change in trend because market would wait for September 18 FOMC," he adds. Below is the edited transcript of Narayanan's interview to CNBC-TV18. Q: What have you make of these developments that we are getting where we understand that the existing arrangements of USD 15 billion may now be doubled?
A: This is one of those low pain-high value kind of arrangements which can be activated quickly and Japan being a friendly country, if we can get USD 30 billion odd available at short notice then it is a huge confidence booster. This is not something you want to dip into unless necessary but atleast something is available at backstop. Q: We are appreciating as a currency ahead of the non-farm payrolls data. What does that indicate for you?
A: It doesn’t indicate anything significant. What we are seeing is possibly the Rajan effect extending for the last couple of days. There is a sense of urgency in the Reserve Bank of India (RBI) to try and bring down the speculation in the currency, bring the currency to a level.
They are targeting a range for the rupee between 65/USD to 67/USD for the next few weeks or so until the FOMC at least. So, they would be happy if volatility is controlled and restricted to a range.
So, these moves on the currency are probably short-termed euphoria of Dr. Rajan’s announcement. The market is slightly happier and confident about what is happening. But I do not think this is a sustainable change in trend because market would wait for September 18 FOMC.