Weak sentiment, less inflows to strain rupee: StanChart

The rupee breached the psychological 63 mark during the fag end of the trading session. It touched to an all-time low of 63.30/USD before closing at 63.13/USD. Forex experts blame the overall weak sentiment for the currency’s decline. Agam Gupta, MD of FI trading at Standard Chartered Bank says that the rupee will continue to be weak if the sentiment does not improve and inflows start coming in.

Steps such as rising diesel prices at one go may send out a positive signal to potential investors which will stabilise the currency going forward, he told CNBC-TV18. Also read: Distant bright spot for India's battered rupee? Below is the edited transcript of his interview to CNBC-TV18. Q: How much is the rupee is going to fall to? A: The move has been very rapid and the sentiment remains very weak. There is a vicious spiral right now. Bonds and equities are getting sold off and so is the rupee. Every market is blaming the other market and saying equities are down because rupee is down and rupee is down because the equities are down. So, sentiment remains weak. If the sentiment does not get propped-up either on its own due to reaching a level where inflows start coming in or due to some further actions from the authority – we will remain on a weak footing. We have already closed at 63.13. So, now the range will shift to 62-64. Q: Volumes were thin and there is big difference between bid and ask quotes as well. Would you get a sense that with the Reserve Bank (RBI) allowing the market to find its own level, may be we are at the last bit of the fall or no such luck? A: I hope that we are in the last bit of the fall but it is a little early to say that. If sentiment remains weak and we don’t really see either exporters coming in or any sort of FII interest coming in, we will continue to see a little bit of weakness on the rupee. What we have to watch out for is equity flows right now. If we do see some outflows then we could see further weakness on the rupee. For the month of August till now the equity numbers have been pretty flat which is good for the moment. _PAGEBREAK_ Q: What from the government might really put a floor to the market you think? There is a lot of talk that that instead of trying to find flows the government should seminally cut the deficit which is basically right price diesel. If the administered price is removed and it is the right price, say up by Rs 6-8 obviously crude imports would fall and trade deficit comes down even below USD 10 billion, probably to USD 7-8 billion. Would that be a step in the right direction and put a floor to the rupee? A: Cutting the subsidies on diesel would send right signals. They already have a programme where they are raising diesel prices every month. They could probably up the speed of that considering that rupee is weak and crude prices globally are high. So, it does call for a slightly higher adjustment every month, which will be good for sentiment. That will also reduce demand oil as you said. They should also look at curbing other non-essential imports. Anything which is non-essential they should try to curb those imports. Q: Anything that can put a floor to the bond prices? A: RBIs intention is to keep short term rates tight which is having a follow through effect on the long term rates. I don’t think the intention is to keep long term rates so high. In any case, the cash position of the government should be comfortable. So, what can put a floor to bond prices is if the government kind of cancels one of the auctions.