Harding on rupee: Greed for more has broken exporters too

The rupee went to its all-time low of Rs 58.69/USD on Tuesday as Asian currencies fell further against the dollar. According to Moses Harding of IndusInd Bank, the steep fall in the INR was the result of importers' fears and exporters' hunger.

He points out that it is the expectation of rupee touching 60/USD that was causing panic among importers while making exporters greedy.
"In this game everybody has lost. Importers are running uncovered positions getting into real loss and exporters are holding export contracts getting into mark-to-market loss," says Harding in an interview to CNBC-TV18.

Below is the edited transcript of Harding’s interview to CNBC-TV18. Q: What is happening? Is there any evidence of PSU banks selling dollars? Earlier in the morning I heard that they were on both sides of the trade. No evidence at all of anyone offering dollars at any level, PSU banks in particular?
A: Rupee is down by 10 percent since first week of May, from 53.66 to 59. What to say on the rupee when Reserve Bank of India (RBI) also has made comments that they do not wish to get into a losing battle. So market is not looking for RBI intervention. I believe that RBI is looking for a level where importers step out and exporters step in. Thereafter they may pull in supplies to give a correction. I do not think they wish to go against the trend. They are looking for a reversal point where exporter's greed goes out and prudence come in and importers’ fears stay diluted.

Q: Who is doing the buying today? Is it the Foreign Institutional Investors (FII) who have investments in debt funds? Is that the sense you are getting?
A: From yesterday most of the importers do not mind paying Re. 1 premium to buy three months forward dollar. That means, three month imports are pulling in USD 100 billion of imports into play. Given this kind of importers' fear, running to cover their three months payables is to have a good sleep throughout the night. That is the play. It is importers' fear and exporters are holding back for 60.

Q: There is so much talk about anecdotal evidence about large scale exits by FIIs in the debt market. Earlier on an expert was suggesting that on top of the USD 4 billion there could be another USD 1.5-2 billion in terms of an exit soon. Are you noticing that trend as well? Can you put it down to any numbers for us?
A: The 10-year bond rally into 7.30 percent on the old 10-year cut the arbitrage play between dollar and rupee and that move was successively triggered by exaggerated move on the headline Wholesale Price Index (WPI) print below 5 percent. I will exit 10-year below 7.35 percent. There will not be any arbitrage play on a fully hedge basis. So exit from that market was not a surprise to me. Also on the equity market side above 6150 there was no support by macroeconomic fundamentals to look for extended rally. So there was at least a dilution in appetite in equity market.

In the combination of that market was looking for 53-55 range. 55 break out caused panic. Then market had a comfort that 57 will stay safe, that break, caused a panic. So as I said it is importers' fear to cover one to two months liabilities and exporters' greed who have already sold at 55 and 57 they hold back. So in this game everybody has lost. Importers are running uncovered positions getting into real loss and exporters are holding export contracts getting into mark to market loss. So I do not think any winner has emerged in this rupee weakness from 53.65-59.