Re will take time to gain confidence against USD: Citigroup

The Indian rupee is up by 28 paise at Rs 49.12 per US dollar today due to fresh selling of the dollar by banks and exporters. Patrick Perretgreen, head of FX & Rates Strategy for Asia, Citigroup, in an interview to CNBC-TV18, gave his views on how the rupee will perform against the dollar going forward.

Perretgreen feels that the Indian currency will take time to gain confidence against the dollar. Also read: Rupee up by 28 paise vs dollar
Below is the edited transcript of the interview. Also watch the accompanying video. Q: How much of a surge are you expecting to see in the dollar from these levels and what have you made of the big move that we have seen of late? A: We have been calling for a dollar move and the dollar had hit off on short-term target of 130-150 against the Euro. The Australian dollar is down close to 94, which was around 110 a while back. So for now, a lot of the pain has occurred. When you look at stock markets and currencies In Asia, Sensex and the rupee have gone hand-in-hand and it does seem like there is an awful bad news priced into all assets markets, be it equities or credit of foreign exchange here. Q: How much of a correlation do you see between a spike in the dollar versus what happens in terms of outflows from other asset classes? A: There are definitely some outflows. Foreigners have a very tiny holding in the Indian bull market. People tend to overlook the exposure of Asian borrowers to dollars. For example, since the end of the first quarter, emerging market borrowers have borrowed USD 1.1 trillion. So borrowers have been sitting there happily, thinking that the rupee and other Asian currencies are going to appreciate. And then there are corporates coming in and trying to hedge some of their dollar borrowings, which has exacerbated things in very thin market conditions. Q: The worry for people watching in India is whether these are crisis sort of levels or these are the levels (79 on the dollar index 49 on the rupee dollar) that the markets will have to live with? A: No. The Rupee is going to take us some time to re-engage confidence. People are ignoring that China has kept the CNY very strong. Most of Asia