Rupee to resist at 61.20/$; govt steps awaited: StanChart

Agam Gupta of Standard Chartered Bank believes that the sentiment in the currency market has improved as likely Reserve Bank (RBI) intervention on Wednesday has boosted participants in the market. He sees strong resistance for the rupee at 61.20/USD levels.

He feels that if the rupee has to sustain the current levels, then some strong measures from the government such as NRI bonds, which will attract dollars, need to be announced. However, rupee's future course will depend on newsflow in the market, he says. Also read: Why Chidu's quasi-sovereign bond issue is a stupid idea Below is the edited transcript of his interview to CNBC-TV18. Q: There was a concerted effort to talk up the rupee yesterday has sentiment improved at all? A: Apart from the concerted effort to talk up the rupee, the fact that the RBI did anecdotally sell and intervene in the market yesterday in a reasonably significant amount, and they made it close to 60.40, changed the sentiment a bit in the market. The market now feels that the RBI is back in with a strong resolve to curb volatility. Also the fact that the Finance minister did remark that NRI money, attracting NRI money is on the cards. The market is on the look out for any announcement, any big bang announcement on that front. So, sentiment is a bit stable right now. Q: You don’t see levels of 61 or the recent low that the markets had hit. The currency market had hit breaching giving the resolve shown by the RBI and possible steps coming in from the government as well? A: I think it is too early to say that. We won’t breach that level. We have to see how the news flow pans out going forward. Do they actually announce something on the NRI front and NRI bond which will actually bring in dollars. It is something which is very important to curb further rapid excessive depreciation, apart from the fact that the RBI policy of intervention and raising short-term rates are the short-term measures. As RBI says it is basically meant to get breathing space. We have to look out for the big bang announcement. Q: Is the rupee going beyond 61 now a little bit of a tough task or that will be a natural resistance for the market? A: 61.20 is definitely a strong resistance right now because it was the high that we saw beginning July; the high that we saw yesterday. But as we have seen levels they are just numbers. It is basically the rapidity and the extreme volatility of the moves which are being curbed by the authorities. If one sees very strong NFP and see USD take further leg up against emerging markets, there is a chance that 61.20 breaks and one sees a bit higher than that. But the fact is that RBI resolve is there right now as they showed by intervening. They are definitely thinking of announcing something in the near future which might bring in dollars. So, those are the two things which are keeping the sentiments slightly stable right now. _PAGEBREAK_ Q: A lot of measures have been taking to try and avoid any speculative positions in the currency market perhaps in the last 2-3 weeks. Numerous measures have been announced to avoid speculation. Is that taking place still or actually the fall that we have seen is purely on demand for dollars? A: Speculative position in the market will also be there to some extent. There will be people who are speculating on both sides actually, there will be some people who are speculating on short-term moves down and vice versa. So, speculative positions will always be there but are there excessive speculative position in the market, I don’t think so. The demand for dollars is basically genuine demand because we do have that current account deficit (CAD) which needs to be financed by capital flows which are not very forthcoming right now. So, I don’t think there is too much speculation in the market right now. Q: There was this talking down of the non-deliverable forward (NDF) market as well that is a reality. At least for the day, would there be some impact because of such talk? A: There is an article which talks about the ministries intention to intervene in the NDF markets or curb speculation in the offshore markets. If they actually manage to do something down that line, then that will obviously be some thing which is unprecedented and it will definitely have impact on the markets. It is to be seen whether anything fructifies on that front. But right now it is mere speculation in some media.