Options with RBI to defend Re severely limited: Axis Bank

Partho Mukherjee of Axis Bank tells CNBC-TV18 that the Reserve Bank has very few or limited options at its disposal to defend the rupee. “To that extent it’s difficult for them, but they have been manfully trying to defend the rupee and I imagine that will continue,” he added.

The greenback today breached its previous all-time low of 54.30 to the dollar and made its way higher on the back of the global risk-off sentiment. The lack of inflows into the economy has further put pressure on the rupee. Given the downward pressure, Mukherjee advices both exporters and importers to cover their open positions. “At this level, it’s frankly very difficult to give a sense as to which way it’s going, so importers certainly should be covering,” he said. Below is an edited transcript of his interview with Latha Venkatesh and Ekta Batra. Also watch the accompanying video. Q: Give us a sense on the sudden weakness that we have seen on the rupee. A: I would say that it’s not very sudden in the sense that the rupee has been under pressure for quite sometime now. No fresh inflows are actually seen in the system, so the rupee continues to be under pressure. Q: At 54.30 a dollar, do you feel that this level will get protected? If it breaks, will you look for any other props in terms of the line in the sand? A: No, I would hate to put a number anywhere; I am not sure that there are any numbers indicated. Obviously the Reserve Bank will try its best to defend the rupee, but their options are severely limited. To that extent it’s difficult for them, but they have been manfully trying to defend the rupee and I imagine that will continue. Q: Is there public sector bank selling and are exporters interested at all at this level? A: I am unable to say, I really don’t know. But my sense is exporters would be covering at least a part of their exposures, certainly. Exporters normally have a tendency to hold off for a while. Q: What would you tell an importer and exporter at this juncture? Would you tell an importer to come and buy or hold off? A: Our advice to importers and exporters usually has been to cover at least a fair proportion of their exposures. At this level, it’s frankly very difficult to give a sense as to which way it’s going. Overall, it does look as if the rupee is under pressure, so importers certainly should be covering. Q: Do you think this 54.30 level was just an aberration considering that the euro-dollar at this point has slipped below 1.27 and the weakness and the risk-off that we have seen globally? A: I wouldn’t term the rupee level to be an aberration at this moment. It’s more a reflection of the overall sentiment prevailing in the rupee market. The euro rate of course is more linked to global factors, particularly Europe at this stage. The level of the rupee is clearly reflected in the pressures that it’s facing. Q: If you are in your dealing room at this point in time, at 54.30 to a dollar, were the sales coming in from public sector banks? A: I am not in my dealing room at this moment, but I really don’t know. There is general tendency to buy the dollar perhaps.