Rupee can see stability if 59.40-59.50/$ reached: DBS Bank

Arvind Narayanan, DBS Bank sees rupee breaking 60/USD and moving towards 59.40-59.50/USD, for the month, where it may find support. He sees the rupee heading to 62.50-63/USD in the medium term.

RBI directed oil marketing companies (OMCs) to buy dollars from State Bank of India on Tuesday. This move will provide some respite to the Indian currency in the short-term, he adds. "Banks will not speculate on the size of oil demand and what is coming through multiple banks and therefore, market is relieved that this is going through one bank," he tells CNBC-TV18.
He expects the rupee to remain weak for few more months. Below is the verbatim transcript of Arvind Narayanan's interview on CNBC-TV18 Q: OMCs have now been asked to buy dollars from a single bank, which is State Bank of India (SBI) as oppose to multiple dealers, do you think that had formidable impact on the rupee this morning in terms of any significant deviation from the levels? How helpful will it be going forward?
A: It is a relief move in the short-term. It gives market a sense that at least dollar demand wouldn’t come to all the banks and they will not speculate on the size of oil demand and what is coming through multiple banks. Therefore, in a way the market is relieved that this is going through one bank. Also, the volume will not get multiplied and that reflects in the currency as well combined with what the Reserve Bank of India (RBI) and Sebi have done in the last couple of days. Q: What is the mood today, very few trades are getting down? Speculation has been taken out; bulky deals have been taken out, is there any volume?
A: The primary role of any inter-bank would be to provide liquidity to rupee market, but there have been so many changes, so many announcements in the last couple of days that most inter-bank are a bit jittery and are trying to cover the pure corporate volumes that are coming in. So, that definitely reflects on the price action. Market would try and take some breather. There has been a big move over the last few days. It doesn’t matter if you take rest for a couple of days, sense the direction where dollar rupee is going and then plan next move as there is a relief for the next couple of days. Q: Are you getting a sense from your overseas counterparts that the relief is temporary and people might again pullout money, current account currencies are getting targeted?
A: I think rupee has some more weakness left. Fundamentals are something one cannot ignore so these measures are good for short-term, will bring some relief to the dollar/ rupee behaviour. But as long as one is driven by better US data and some weakness on the domestic rupee fundamentals, currencies would gravitate towards the US.
It is not just India story, but has also got to do with what is happening in the US. It is something we should be prepared for. I would look for a weakness in the rupee over the next couple of months as well.

Q: Are you looking at any rupee level for this week or for the month, where could you see the Indian currency?
A: I see dollar-rupee trying to break 60/USD on the lower side and move more towards 59.40-59.50/USD but that should possibly hold. I do not see significant moves beyond 59.40/USD or so. On the upside, its un-chartered territory, we have spent a long time beyond 60-61/USD but in medium-term, we are targeting more towards 62.50-63/USD thereabouts. Q: The trade deficit is expected to come better in June than May, do you think there could be a bit of a sentiment upside? What other triggers can we expect in terms of possible dollar inflows which could support the rupee going forward, any parameters that you are watching out?
A: Base case reaction to a better current account deficit would be rupee strengthening and you will see dollar-rupee coming down. But market would graduate beyond that and say (a) is it sustainable (b) how are we looking to finance whatever current account deficit is left to be financed because now the foreign institutional investors (FIIs) inflows seem to be missing, foreign direct investment (FDI) inflows is not in their best climate in India and globally to make large investment.
While a good current account deficit would give temporary relief, market is looking for some more policy measures and steps that can be taken to control this deficit.