61/$ key support for rupee; sub 60 unlikely soon: Macquarie

The recent rally seen in the Indian currency was fuelled by bullish statements by new RBI governor Raghuram Rajan, but for it to gain further, positive domestic developments on policy and macro fronts are required, says  Nizam Idris, Head of EM Fx Strategy, Macquarie.

"Rajan has largely been talking about liberalising banking sector rather than how he would handle the currency weakness. So, for me, nothing much has changed.I am not confident that the dollar rupee will fall below 60/USD anytime soon," he said in an interview to CNBC-TV18. The rupee will find key support at 61/USD in the near-term and may depreciate to 65/USD if macros don’t improve, he added. Also Read: RBI will be reluctant to allow rupee to gain, says Credit Suisse Below is the edited transcript of Nizam Idris interview with CNBC-TV18 Q: The key question is whether the rupee will not appreciate further and whether it will even sustain these gains? What is your opinion? A: For now, it is likely to sustain because it has appreciated quite a bit over the last couple of weeks. The jump we saw this morning is driven by what Federal Open Market Committee (FOMC) has done and further gains require more domestic developments which are positive for the rupee. The market could wait for the Reserve Bank of India’s policy meeting. Q: How much more do you think the currency can gain from here, just in the near term? A: For now 61/USD looks like a decent support. We are just below 62/USD. So, the kind of range that the market should expect immediately is around 61.5/USD-62.5/USD. Q: The medium-term movement for the currency because we have seen it appreciate more than other emerging market currencies especially since September 4 when there were the foreign currency non-resident (FCNR) measures etc announced by the new Governor. Is that what most of the foreign institutional investors (FIIs) are taking notice of and maybe the Indian rupee might be a little more isolated in its trajectory as oppose to other emerging market currencies now? A: It is also relevant to look at what happened to the rupee before that. From May to late August, rupee was the weakest currency in Asia, in fact almost in the world because other currencies that could match the rupee’s weakness were only Turkey and South African rand. So, this appreciation was largely estimated to the bullish kind of statement that Governor Rajan gave in the press conference, but further appreciation needs solid progress in policy and on the macro front. Governor Rajan may need to provide more details on how he wishes to handle the pressure on the currency. Rajan has largely been talking about liberalising banking sector rather than how he would handle the currency weakness. So, for me, nothing much has changed. There has been change in the level of confidence, but for today it is because of FOMC, which brought dollar weakness. So, if we put all those together plus the weakness in the rupee prior to that then this appreciation is not surprising. But like I said, we need further positive developments domestically to trigger further strength in the rupee. I am not confident that the dollar rupee will fall below 60/USD anytime soon.