RBI must give 'I understand' signal to market: Mecklai

The slipping rupee has slightly gained strength and experts believe that it is a welcome move to see the rupee reacting.

In an interview with CNBC-TV18, Jamal Mecklai of Mecklai Financial Services said, "Even if India starts looking better than it did two weeks ago or two months ago, there is still not a whole lot of fresh money to come in." Mecklai further pointed out that the global markets are still uncertain and the negative factors cannot be discounted. Talking about the RBI’s role in helping the rupee gain further, Mecklai clarified that the RBI needs to walk away from its slightly 'draconian' stance, unlike what it had done in November-December last year. Providing cues that reflect the understanding side of RBI can also help, pointed out Mecklai. Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying video. Q: What is the sense you are getting? Is there more strength to come in the rupee or is it just a temporary appreciation and we get weighed down by current account holes? A: First and foremost, when you are giving all the reasons for why the rupee reacted, you left out the main reason. The main reason is that I was praying like hell. It was a pretty difficult time. The fact is it was sort of an emergency situation. So, you got to do what you can do. While everyone knows what long-term measures are and wants to see them, you need to have short-term measures. I think it's very good they did what they have done and it's very good that the rupee has reacted. What I would takeaway from it is the fact that clearly north of 53 is too far, which doesn't mean it won’t head back over there because all other factors are still negative. One other factor is the fact that the global markets are very uncertain. Even if India starts looking better than it did two weeks ago or two months ago, there is still not a whole lot of fresh money to come in. Perhaps this has blocked the terror. It’s come down below 53, which is very good. I think you will probably still see it ranging for a while, because there is a lot of uncertainty. But, the good news is, we are perhaps seeing the bottom. Q: Just wanted to extend that point forward with regards to the correlation with the globe. Yesterday we appreciated, post the clarifications which came in from the Finance Minister Pranab Mukherjee. But, in particular, what sort of correlation are we working on with regards to the dollar index as well as the euro which is fluctuating at around 1.29-1.30? A: We have been moving sort of independent of them. They have just been dancing around little foxtrot, whereas we have been doing tango. Obviously it's been local factors that have affected things. The risk for the rupee is that if the euro does go in too soon, like it's beginning to show signs of, that would feed in here also. But, right now, everybody I am sure at Reserve Bank and everywhere else is relieved. It's a little bit easier. That's really the situation. It's very tentative and again the main thing is you got to be very, very careful. Back in November-December, RBI became very draconian in sort of hedging rules, maybe they can start unwinding some of them now. They need to give signals to the market that look 'we understand'. It was a problem. Maybe, the crisis is not over, but it's a little bit easier. Here are a few things you can do. There are a lot of companies who want to buy coal spreads for example to hedge and they can’t. Q: Did you hear about a lot of corporates now working through the currency Futures market, because all these limits are only for the OTC market? We heard at least yesterday that there was a lot of selling of dollars on that market. Can you confirm? A: In the currency Futures market, vast buck is still trading. But, since December, we have lots of corporates who started coming to the currency Futures market because the OTC market is very difficult. Also what’s very interesting, what we are seeing now is a lot of companies who have got economic risk, companies who are buying some petrochemicals from Reliance which is priced on dollar-rupee, are coming to the currency Futures market. This is so because under historic regulations, they can't hedge in the OTC market. I think the currency Futures market is in a sense getting more real that way.