See rupee in 54.50-56.50 range in near-term: HDFC Bank

There is a lot of pressure on the rupee, given the flows situation, says Ashish Parthasarthy of HDFC Bank. "I think rupee looks a bit weak," he adds.

In an interview to CNBC-TV18, Parthasarthy says, on the downside, 54 would be a reasonably strong support. "We do not see too much of appreciation from here. The range possibly is 54.50-56.50 in the near-term," he asserts.

Also read: Rupee may not breach 55.46-55.50 in near-term, says UBS AG

Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra.

Q: What is happening with the rupee at this point in time? How are we doing as opposed to other currencies or emerging market currencies, which are more vulnerable to the dollar, in terms of beta? What are the triggers that we can expect till the end of the year for the rupee? What are the levels you are working with?

A: I think it is very clear. We are well aware that there is a lot of pressure on the rupee, given the flows situation. We have seen a very high trade deficit, close to USD 20 billion plus. Now again most forecasters have revised their current account target, for the year, closer to 4 percent than to 3.5 percent. So, obviously there will be pressure on the rupee.

If you see the currencies, which rupee has moved with in recent times like the Brazilian real, the South African rand, those also are weakening against the dollar. Rupee seems to be heading that way. Some of them have weakened more than the rupee in the recent past. So, from that perspective, I think rupee looks a bit weak.

However, purely on levels basis, you have seen the rupee around 55.10 in the earlier phases. So, there is a lot of resistance there. If it breaks through that convincingly then you could see it trying to touch the earlier highs of over 57. On the downside, I think 54 would be a reasonably strong support. So, we do not see too much of appreciation from here. The range possibly is 54.50-56.50 in the near-term.

Q: What would you entice your exporters to wait for? Can they wait for 56?

A: We are telling our importers to cover, whenever there is dip in the rupee. Right now, there seems to be a lot of pressure, a lot of uncertainty, given the parliament session which is going to start very soon, given the fact that there is risk aversion in global world fearing the US fiscal cliff. You can see global stock markets not doing well. So, there would likely to be pressure on the rupee.

Q: Are you expecting an OMO announcement this week?

A: I think we are closer to an OMO. Whether it is going to be this week or towards the end of November, it is the question of timing. But, yes, we are definitely closer to an OMO than we were before.

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Q: What would you say is an attractive level? What kind of range are you looking for 10-year yield?

A: I do not see a huge rally in bonds, even if there is an OMO. In the past, we have seen OMOs keeping the bond yields in a range. So, I would expect the 10-year to trade somewhere 8.10-8.20 percent kind of range and be there. I do not see too much of a rally or a downside either.

Q: What is the timeframe for this range, considering you expect it to go all the way to levels of around 8.10 percent?

A: I would see this range continuing for next two months. And then we will take a call depending on whether there is an extra borrowing and what happens to other things.

Q: The fiscal deficit is a number that definitely looks like is going to be higher than the 5.3 percent that the Finance Minister is continually stressing. At what level will you definitely sell bonds? Would you not factor in a definite increase in market borrowing?

A: Yes. We are definitely factoring an increase in market borrowing. Even under the optimistic scenario, we were expecting a fiscal deficit of around 5.5 percent. There will be definite increase in borrowing. However, that will get offset by a sequence of OMOs. So, that is why I think it is likely to be rangebound. The lack of credit growth is also helpful for bonds. So, it seems to be rangebound at this point in time.

Q: At 8.18 percent, what is the 10-year factoring in for the December policy?

A: I do not think that there are expectations of any rate cut in December in the market. Most of the market participants would be expecting is in the January policy.