Don't see rupee weakening too much; not to go past 69.25/$: Pros

RBI to help smoothen volatility, said Venkatesh.

Bhaskar Panda of HDFC Bank does not see the rupee going past 69.25 to the dollar anytime soon because according to him the slide is overdone. He also does not expect the dollar index to rise further than 104 because it could impact American exports and jeopardise their Make in America programme.Below is the verbatim transcript of Khoon Goh, Krishnamoorthy Harihar, NS Venkatesh and Bhaskar Panda's interview to Sumaira Abidi, Ekta Batra and Anuj Singhal on CNBC-TV18.Sumaira: What is your sense of how much further weakness could creep into the rupee now?Goh: I think rupee is definitely heading into unprecedented territory, it has reached all time lows, lot of it is purely being driven by US dollar strength and I guess the negative near-term headlines as a result of demonetisation is probably not helping sentiment as well.So at this stage, it is going to be ongoing volatility in financial markets as outflows continue to move out from emerging markets as a result of dollar strength and the rise in US interest rates. But I don’t think the rupee will necessarily weaken much further. I think the RBI has plenty of forex reserves and they will continue to keep a cap on the extent of the depreciation in the rupee.Ekta: How do you look at rupee\\'s depreciation back to the record low over a period of three years because the last time we did touch it was during the taper tantrum time on August 28 of 2013, we have taken more than three years to get back to those levels. So from a larger perspective, how would you approach the rupee versus other currencies?Goh: When you look at it, purely against the US dollar, it would seem like the rupee has fared pretty poorly but you have to remember, India has historically run high inflation rates so from a real effective exchange rate (REER) point of view, the rupee is still slightly on the expensive sides too. So from that aspect, the weakness in the rupee doesn\\'t necessarily reflect underlying weakness.Anuj: The Reserve Bank of India (RBI) intervention did try to support the currency but looks like that support is gone now, what next?Venkatesh: Essentially even if the intervention has happened, it is only to smoothen the volatility. The economic fundamentals of the country are still intact. What has happened is the Fed Chair talking of the rate hike in the December has made some money go out of the country. The demonetisation has brought a little bit of uncertainty and that has also ensured that some of the foreign direct investments (FDIs) have pulled out the money from the equity market, which affecting the equity markets as well.The rupee is taking cues from the equity market flows and that is where the depreciation has come to this stage. Hopefully, if the market stabilises, we should see dollar-rupee also getting stabilised. If you look at it from the emerging market currency perspective, most of the other currencies are depreciated vis-a-vis dollar, the dollar has strengthened and the Indian rupee also has weakened a little bit.Sumaira: With this level of 68.86 a dollar, we are pretty much in unchartered territory, what is your sense of how things shape up from here and any sort of indication that you can give us about what is happening in the dealing room?Panda: In the dealing room, people are in the dark about what to do going forward. However, given the situation that we are in today, given the fact that there has been Trump win and demonetisation coming in and subsequent devaluation or subsequent rupee depreciation, we have already reached 2013 high -- 2013 was a very different set of scenarios and today is very different set of scenario.Dollar index has now moved above 101 and probably can go technically to 104 and can go higher also but my sense is that dollar index may not move so drastically because it is going to affect their exports itself and their Make in America campaign can be jeopardised.Given all that, we are going to a scenario where rupee is going to depreciate more but not beyond 69-69.25 a dollar. I don’t see it going beyond 69.25 a dollar in the current rally. That will be a new high.Anuj: The momentum is strong and we have seen foreign institutional investors (FII) selling as well.Panda: We have seen FII selling, it has sold around USD 6.8 billion so far in this month. So if the question is that if they are going to sell some more? Yes, they might but if the question is that if they will continue with the kind of momentum they have been selling? I have my doubts.So therefore, I would believe that selling pressure also will come down going forward. We have seen rupee opening everyday with a gap. That is going to get filled some day. Nobody has a clue whether it will stay at 69.25-69.50 a dollar, it might overstay but the basic sense that I am trying to say is that this rally is overdone. We have already seen 3.5-4 percent move in last eight days. I don’t think it is going to continue for very long.Q: What is your sense coming in for the currency? It of course is a double whammy that we are looking in for the rupee but would you say that the rupee perhaps factored in all of these stuff now or is there more concern building up?Harihar: You covered it all. It is facing various negative factors and the biggest factors seems to be coming from abroad. After the US elections, clearly the consensus seems to be that with the new focus on US economy, the gross domestic product (GDP) probably is well on the way to get off at 2 percent level and probably fire away at the 3 percent level, giving enough ammo to the Federal Reserve to hike not once, but probably more than once. The US ten-year treasury bill is clearly showing that up when it is showing a 2.30 to 2.40 level from the 1.80 level it started off with. So, what is really happening is the global dollar index, as you mentioned, this is a 13 year high, that is putting pressure on all EM currencies. In India, we face the double whammy because the foreign institutional investors (FII) have been selling out on the Indian stock market and the equity market this month and we have close to about Rs 22,000 crore already out of the system. So, USD 3.5 billion going out by itself is a large number. In addition, it happened in a month where we believe that there is a maximum concentration of the Foreign Currency Non-Resident (Bank) (FCNR B) outflows that had begun to happen from September onwards, but November was the supposed to be the biggest month. Then the clear sense in the foreign exchange market (Forex) market that part also has played a role where the dollars have gone out of the system and there is a certain amount of dollar shortage that has come up and the reason why you see that is for the first time in ages, we are seeing what is called the discount, that is you can buy month-end dollars at a lower price than today dollars. So, dollar shortage in India for FCNR B, FII outflows, dollar index going up, all of them have confluence.To answer your second part of your query, do we see this continuing? So long as we see the dollar index going up globally, and the Fed sounding a bit aggressive out there and the FIIs continuing to sell in India, you would see further weakness and ironically, the fact that we are all celebrating the interest rates going down which is seen as good for the Indian economy, could also be a disincentive for overseas investors to come and put fresh money into the bond market. So, we could see continuous pressure on the rupee, but probably a large part of it is already getting baked in. But we could see further downside.For full discussion, watch accompanying videos...