RBI protecting 59-90-60/$ to aviod further fall: Harding

The Reserve Bank of India (RBI) was attempting to protect 59.90-60/USD range to ensure that a new low above 60/USD was not reached, Moses Harding of Indusind Bank told CNBC-TV18.

The rupee tanked to an all-time low of 59.93/USD on Thursday. On intervention to arrest the rupee slide, Harding said that providing dollar supply was not the solution. He added that there won't be sufficient inflows from the foreign institutional investors (FIIs) to finance the current account deficit (CAD). Also read: Unrealistic to expect sharp RBI rate cuts due to weak rupee Below is the edited transcript of his interview to CNBC-TV18. Q: There is renewed pressure coming into the rupee. What would you attribute it to? A: Basically, the Reserve Bank of India (RBI) is protecting 59.90-60/USD (range) to ensure that we don’t post a new low above 60. People are scared to hold short dollar overnight after seeing Re 1 gap down today. So, overall, things are very scary and not good for rupee. Market was expecting some credible actions from the government to provide improved sentiment and confidence. So, in the absence of that, any kind of pressure; non-deliverable forward (NDF) trading higher, we probably will see a breakout opening tomorrow. Q: You said that some kind of intervention may be expected. But, what do the policy makers right now have with the currency approaching 60/USD-mark. What exactly do they have in their ammunition right now? A: Providing dollar supply is not the solution. The sentiment is weak, confidence is low, and the FII pullout is certain post the hawkish stance by the Fed. So, it’s not going to be sufficient inflows from FII to finance current account deficit (CAD). In the absence of that you need to look at FDI flows and which will not be a near term solution. So, the demand-supply mismatch on the Balance of Payment (BoP) is going to cause a big worry in the near term. That is building the rupee weakness. On the other hand, most of the imports are not covered while most of the exports are. We have a lot of uncovered foreign currency loan in the picture. Given this pent-up demand for dollar rupee weakening by one big figure everyday; that sets up the importers fear syndrome and the exporters greed syndrome. So, it is difficult for the RBI to match this gap with their supply given the not so strong reserves in their kitty. Q: What is the downside target that on the rupee now? A: Technical studies have gone through the roof with this strong fundamental play. So, anything above 60 – some can say 61, 62, and 63. Anybody can say a level because technical studies do not support and are becoming meaningless in this strong fundamental play. When the market is opening out with a Re 1 gap down technical studies cannot support your trading action. Q: In case there are further sell orders of government debt from FIIs like what happened earlier in the day or on the debt side; would there be incremental pressure on the rupee? Are there more sell orders within government debt which could see play out in the next couple of days? A: The 10-year securities are above 7.40 percent on the new bond and 7.50 percent on the old bond. These will dilute FII exit from the debt market. So, that is the positive scenario. There is a need for the RBI to maintain the bond yields at a slightly elevated level so that FIIs stay put. FIIs have already lost heavily on the exchange rate. So, they may decide to stay put if yields stay at elevated levels. So, to arrest the rupee weakness there is an immediate need to keep the bond yields high to prevent FII exit from the debt market. So, that is a bit of comfort for the rupee at this stage since the new has already moved to 7.40 percent. So, we should ensure that FIIs do not pull out from the equity market because of that. That is a kind of complex situation we are stuck in.