Extent of rupee fall not expected; strain to continue: DBS

The rupee breached the 61/USD mark on Monday, sliding to an all-time low of 61.21/USD. Speaking on the falling currency, Arvind Narayanan of DBS Bank told CNBC-TV18 that improving economic situation in the US was responsible for the extreme weakness in the home currency, but the extent of the slide was surprising. He expects the pressure on the rupee to continue.

Speaking about the need to check rupee's fall, Narayanan said the oil companies are expected to announce options to stabilise the rupee. Declining gold imports have also brought some cheer in the market, he adds. He believes that the Reserve Bank of India (RBI) won't be very worried about the the currency's fall, but can be perturbed by its volatility. Also read: Rupee hits all-time low, breaches 61/USD Below is the edited transcript of his interview to CNBC-TV18. Q: To a certain extent, weakness was expected after this strong job’s data and the dollar strength on Friday but 61.2/USD for the rupee, did you anticipate that? If so, what do you target next for the rupee then? A: After the jobs data on Friday and looking at the price action in the overseas market, rupee was expected to open weaker. Definitely 80-90 paisa was not the move, which we anticipated. But the pressure seems to be there. Equity markets are negative. US interest rates have gone up so funds are going to flow out. So as long as this continues, we expect pressure to continue on the rupee. However, some announcements this morning which have made sense – one is they are talking to the oil companies in the afternoon about forex options and alternatives available. Some announcements there is the window we are looking at. Gold imports have come down. That has also brought in some cheer in the market. So, the correction on the dollar-rupee primarily on account of this. Q: The Reserve Bank of India (RBI) is believed to have sold some dollars today. But do you expect more measures from the RBI or the government? From one fresh all-time low to yet another, there seems to be no stemming this fall at this point? A: The RBI will not be worried explicitly about rupee level because they have mentioned this time and again that they are worried about the volatility in the currency. As long as it is in line with the other emerging markets, other nations in the region, RBI would be okay. Q: This is volatile. Also, if you look at it in comparison with other emerging markets (EMs), we are still the worst performer today at least? A: That is right. So I guess our options tend to be fairly limited. If you are playing with the reserve, which is of 7 months imports equivalent, there is only so much you can do in terms of actual intervention in the market. That is not a tool which RBI endorses explicitly. This will be combined with some solutions, which will reduce the volatility in the market. So, buying of dollar by the oil companies from a separate window will deep into our reserves definitely. But if it can reduce the volatility in the market and gives a sense of lesser dollar buying then a sentiment can change. Wherever exporters do not see any dollars being bought, then they are brave enough to hold back the dollars as they anticipate dollar to move higher. But the moment, the dollar buying stops and dollar/rupee does not significantly start moving higher, then some exporters may start coming in selling in their dollars and trying to take profits. That could also be a good move to bring dollar/rupee down in the short-term.