Rupee 12-month target seen at 61/$: Barclays Capital

The rupee fell to 64 against the dollar on Tuesday, but pulled back to 63.50 after the RBI stepped in to pull the currency off record lows. In an interview to CNBC-TV18, Nick Verdi of Barclays Capital says that he has a 12-month target for the rupee at 61 per dollar.

For now, he says, investors can go long on the rupee as it is very difficult to call a bottom for the currency. Also read: Currency in crisis: Here's why rupee fell below 64/$ Below is the verbatim transcript of his interview to CNBC-TV18 Q: We are seeing a little bit of stability to the rupee. We do not know whether it is because of the Reserve Bank of India (RBI) supplying dollars, but what is your own sense? Has the selling gone on too much of the rupee? Is there a natural support to be seen at 64? A: We have obviously gone through all-time highs for dollar-INR. So, it is very difficult to call it a top here. It is catching a falling knife. We did see some support at 64. That level does seem relatively well supported for now, but it is clear that the INR is really stuck in a group that includes Indonesia, the Brazilian real and to a lesser extent the Mexican peso, one in which higher US yields are really hurting sentiment in these currencies. A lot of the issues that the rupee has faced have been on the back of talk of US tapering. However, what has really compounded the issue has been the response of the Indian authorities which has not really reassured investors to the extent that they want to push money back into India. It seems as though outflows are looking more likely than further inflows at the moment. Q: You did touch upon the ferocity of the fall in rupee slightly, but why is the Indian INR falling much more as compared to the Asian counterparts? A: A key reason for this really relates to A, India's problems and B, where the global recovery is coming from. Indian economic issues are well documented in terms of the Current Account Deficit (CAD) and the weakness of the currency really compounds that issue which is related to the second point, the global recovery is being led by the US. I am not really sure how much the US recovery will benefit Indian exports. To compare that to the rest of the region, North Asia in particular is doing pretty well on the Fx front. China, Korea, Taiwan currencies appear to be holding up pretty well, but it is the Indian economy as well as the Southeast Asian currencies which appear to be hurt here. It is happening in three stages. 1) The high carry currencies have been hit. 2) It has become more about those currencies with high levels of total debt. 3) It is about those currencies that have a high proportion of foreign bond ownership and Malaysia and Thailand are falling into that camp. So, it is moving through the region, but it did start with India and Indonesia. Q: Do you have any access to non-deliverable forward (NDF) quotes on the rupee? Are you getting a sense that we are going to see at least some near-term stability at all? What are those quotes indicating? A: At the moment it does not seem that we are seeing stability. Offshore forwards are pricing in further depreciation in the rupee and I think one of the oft quoted reasons to be long the rupee was one of carry. That sentiment has clearly turned around and that is one reason why one does not want to hold the rupee. In a world of rising US yields I do not expect that expectations to change in the coming days. Q: What are the near-term levels that you are watching out for on the INR? Is 65 on the cards? A: 64 is a big one. The technical guys think that if that breaks we could see a move higher. Our 12 month view remains 61, which is only a small appreciation from where we are today. But the fact is we are into uncharted territory with respect to rupee weakness. Dollar-INR is very close to all-time highs here. So, it is very difficult to call a cap and recommend that investors go long rupee at this stage.