Rupee may test 68/$ yet again: StanChart

The RBI has been very aggressive in trying to rescue the rupee from its relentless fall, says Agam Gupta, managing director, Head of FXRC (Foreign Exchange Rates & Credit Trading), South Asia, Standard Chartered Bank.

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Speaking to CNBC-TV18, Gupta says the RBI's move to meet oil importers’ dollar demand through forex swaps has been a sentiment booster.
However, the threat of rupee depreciation continues to loom large.
“Inspite of these two positives, the market is in the need of short-term dollars. So, if the RBI does not continue to supply dollars in the next few days then there is a chance that we test above 68/USD again,” highlights Gupta. Below is the edited transcript of Gupta’s interview to CNBC-TV18.

Q: You think that we are still in danger of crossing 68/USD and those levels unless the Reserve Bank of India (RBI) gives a shoulder?
A: In the last two weeks we have seen pretty aggressive intervention from the RBI. They have sold to the tune of approximately USD 6 billion in the last two weeks. It is definitely having an impact on sentiment as it is getting slightly better. The scheme of providing dollars to the oil companies is also a boost for sentiment. However, in spite of these two positives, the market is in the need of short-term dollars. So, if the RBI does not continue to supply dollars in the next few days then there is a chance that me test above 68/USD again. Q: There are a couple of positives. The big oil demand has been taken out and sentimentally, crude is at least USD 3 cheaper. Is all that not adding up to anything?
A: Sentiment has improved but in the short-term, there is still a demand supply mismatch. The demand from foreign institutional investors (FIIs) is still there, exporters have still not started selling dollars, they are sitting on the sidelines and on any dip we see importer demand. If one adds up all these, in the short-term the demand supply mismatch is still there. Q: What is the pecking order now in the entire emerging market currency basket, which will be the weakest emerging market currency? Will it still be the rupee or are there others in that list as well?
A: One cannot compare and say that this is weaker or the other currency is stronger. We are seeing a consistent theme where currencies with high current account deficits are seeing weakness. If one looks at the pecking order that all these three or four currencies are performing, it is a similar manner and at the same time we are seeing measures from the central banks and the government in all these currencies as well as the currencies are now stabilising atleast for the short-term. Q: When does this kind of period of uncertainty end? I do not mean bearishness on the rupee but I mean just do not know what tomorrow will bring. How long are you all preparing yourself for this period of uncertainty and therefore when does the RBI’s very unnatural ten quarter marginal standing facility (MSF) rate go away?
A: The first and the most important thing is going to be the Federal Reserve meet in the middle of September and what announcements come out from there. I hope they announce the tapering and go ahead with it rather than keep a hanging sword on top of the market because uncertainty is probably worse than the actual flow happening. The market is already pricing in quite a bit and it is best that the event starts happening and we see how it enfolds. That is when the uncertainty will end once the event happens.