Rupee may hit 70/$ before it strengthens: StanChart

The rupee is likely to touch 70/USD on technical grounds, before it starts to strengthen says Rob Aspin, Senior Investment Strategist, Standard Chartered Bank.

Weaker currency has further heightened concerns about CAD and higher inflation has caused RBI to raise rates, which is turn is putting pressure on the equity markets, he adds. The government and RBI need to come out with very concrete and clear steps to reduce CAD and focus on local growth, he told CNBC-TV18. Aspin does not think the market is too concerned with what is happening in Syria at the moment. “But if the geopolitical crisis does worsen then the market will start to factor on that, but I do not think that is being priced in at this point of time,” he adds. Also Read: Food Bill passage invite to rating downgrade: Nirmal Jain Below is the verbatim transcript of Rob Aspin's interview on CNBC-TV18 Q: There is quite a bit of a meltdown that we are seeing in emerging markets (EM). What is leading to that? Is it geopolitical in nature? Is it more domestic concerns for some of these countries? What is happening right now? A: The key focus in the market right now is on the Current Account Deficit (CAD) in India, Indonesia and a few of the other markets that we look at globally. Focusing on India, I think the market's initial concern was in terms of bond yields rising that was due to discussions over the Fed tapering a couple of months back, that led to outflows and a weaker currency. The weaker currency has raised concerns about the CAD and also higher inflation causing the central bank to raise rates and that is now putting pressure on the equity markets. The view that we had highlighted about a week and a half back now is that should the rupee go to 65 we take the view that on technicals it may hit 70. So clearly weaken up a bit further from where we are right now, but we also take the view that on the medium-term, rather than just focusing on short-term the currency does look a little oversold. But that basically means that it could go from 65 all the way up to 70 and then start to strengthen. The key thing here is that the government and the RBI need to do the right thing. They need to come out with very concrete and clear steps to reduce CAD and focus on local growth. There the encouragement of FDI is absolutely critical. Q: How much of a deterrent could the Syria tensions be for India now and where have they escalated to in your conversations with clients as well as your peers? A: In terms of the geopolitical risk I think at this point in time it is not an absolute focus by clients right now. It is clearly in the news and I do not think that the markets are expecting it to be a lengthy period of activity should Syria escalate. Right now the market is clearly focused on what is happening in India, Indonesia and also in the Philippines which has also sold down today. So I think the market is having more of a focus on these domestic issues rather than the geopolitical aspects. If that geopolitical crisis does worsen then the market will clearly start to factor on that, but I do not think that is being priced in at this point of time.