Rupee to touch 66.50/$, need tighter RBI steps: Ray Farris

The rupee may move to 66.50 per dollar unless the current account situation improves, says Ray Farris of Credit Suisse. He does not think there is a rout in emerging market currencies. Countries that have stronger current account fundamentals, low inflation, relatively high real yields are not weakening meaningfully, he says.

Also Read: Rupee hits new low at 66.07/$ on demand from oil importers
In the near term, for rupee to stabilise, tighter monetary conditions are needed, and it is clear from RBI's recent bond purchases or no activity that the focus is on preventing yields from going much higher, says Farris. Below is the verbatim transcript of Ray Farris's interview on CNBC-TV18 Q: It is an emerging market (EM) currency selling rout that we are seeing this morning but how would you approach the rupee now beyond the 65/USD level?
A: First thing is you have to be careful in saying that it is an EM currency rout. Countries that have stronger current account fundamentals, low inflation, relatively high real yields are not really weakening meaningfully. It is the current account deficit (CAD) currencies with higher inflation, lower real yields that are suffering. What happens from here to the rupee is it probably continues to depreciate. What needs to happen in the near term to stabiles the currency is tighter monetary conditions and it is clear from RBI's recent bond purchases or no activity that the focus is on preventing yields from going much higher. So as a result you are not getting the necessary support from the currency coming from higher yields and tighter monetary conditions. Q: Is there any level you would look at now, do you think the rupee takes the prevailing low of 65.55/USD and goes on to make new lows pretty quickly?
A: We certainly think that it is just going to continue to depreciate. We have got a 12 months forecast now of 66.50/USD, so we think it is just going to move in that direction until the current account balance improves. I think the current account balance should improve gradually. Because of the weakness in the currency and slower growth in the economy it is going to be a slow process or until the government comes quite seriously about stabilising the currency.