But for RBI move, rupee may have fallen to 63: BoA

Jayesh Mehta, MD & Country Treasurer, Bank of America, says had the RBI not gone ahead with the tightening measures, rupee would have perhaps gone down to 62-62.5 or maybe even 63. But it couldn't have gone up to 65-70, he says adding that was all noise.

According to him, RBI has been very clear that the focus has to be on growth and the need to have something done on the fiscal and on the macro side. He told CNBC-TV18, tightening measures are not going to help in the short term and from that perspective there is a need to focus on growth. Though he still hopes for an interest rate cut in this financial year.
He feels, at this point even a small positive news on the macro side would definitely help the market a lot. The currency will follow the equity market, so that is where people are looking at. Below is the verbatim transcript of Jayesh Mehta’s interview on CNBC-TV18 Q: There is a signal that one is getting that it was a mistake perhaps to have gone with all those tightening measures; that the rupee should be allowed to find its level. If there are no interest rate tightening measures or anything dramatic announced by the Reserve Bank of India (RBI) do you think the rupee is going to plumb very severe depths or do you think it is kind of at its level?
A: I think it is more or less kind of at its level. We always have this noise like once it cross 62, people start talking about 65-70 and stuff like that. At least with these measures it shows a signal that the government and RBI are very serious about doing something very quickly about it and that is where that noise of 70 has gone off. Otherwise, we think in hindsight had nothing been done it would have gone up to 62-62.5 or maybe 63. But 65-70 was just a noise and it would have been more or less the similar thing. Q: What I understand is today there is just a routine Financial Stability and Development Council (FSDC) meeting in the RBI between RBI and finance ministry officials. If nothing dramatic is announced tonight or Thursday night do you think the market is going to be disappointed? Is it waiting for something big at all?
A: Not really. I think market is very cautious. It is now tracking normal flows. Market is kind of tracking the equities' inflows, outflows and stuff like that, though headline if you look at two days back data, the outflows are still not there, but then people are more concerned about that. Every time the equity market is down you are seeing the reaction and of course we have normal oil companies demand, which is normal thing.
It is taken as normal situation now. I do not really think I would be surprised if the market really moves, if there is no announcement from today's meeting.
_PAGEBREAK_ Q: The Indian macro situation, everything has always been called as the impossible trinity. Do you see the possibility of perhaps the new RBI Governor giving up the fight against the rupee, letting it find a market level according to the market forces and perhaps focusing on growth and therefore the rupee continues to stay under significant pressure?
A: No, I think the RBI has been very clear that the focus has to be on growth and we need to have something done on the fiscal and on the macro side. This was more like a breather put in, that is what the official statement says. I do not think tightening measures are really going to help on a short-term basis. From that perspective we need to focus on growth.
People are looking for some positive clue for equity market and that should really do a lot of benefit to the market. Unfortunately we do not see any positive news coming, so at this point even a small positive news on the macro side would definitely help the market a lot. The currency will follow the equity market, so that is where people are looking at. Q: How would you look at the bond markets now? There are people who have long-term positions willy-nilly. At what point in time do you think yields will start moving back towards 8 percent or so. Do you see it happening by the end of 2013?
A: By 2013 definitely we see it. Maybe I would look at it slightly earlier. If the next focus is going to be on growth we need to get the interest rates lower. One has to figure it out like the current measures, how long it continues, but in the meantime something has to be done about the long bond. It has moved quite dramatically I have never seen this kind of rise in yield for long bonds in almost like last 20-25 years in such a short run.
Hopefully, we might see some stabilising effect maybe by mid-September or end-September. Even if you keep the money market tight, maybe you need to do something on the long end of the bond. It is only the supply which is actually driving the yields higher and higher. Something has to be done, we do not know what. Just wait and watch. Overall, this tightening will not continue for long period and growth is at worrisome numbers. We still have not given up the rate cut hope in this financial year. Q: Mid-September do you see the 10-year bond yield at closer to 8 percent levels and what would be your three month target on the rupee now?
A: That is very difficult to say. We have to see some positive clues. It could move either way dramatically. I do not think on the depreciation side there is much room now, but on the appreciation side we need to see some really positive actions, not from the monetary side, but from the macro side.