Don't see sharp rupee depreciation from 64/USD: DBS Bk

Below is the verbatim transcript of Arvind Narayanan’s interview with CNBC-TV18's Anuj Singhal and Sonia Shenoy

Sonia: Would you concur with this view that it is not a fundamental problem that the rupee is seeing. It is merely a snowball effect because of what is happening globally that we are seeing this stumble, also what kind of levels would you expect to see in the near future?

A: This needs to be seen in a context different from what it was in August-October 2013. From what we have seen the immediate triggers has been the Foreign Institutional Investor (FII) controversy especially on Minimum Alternate Tax (MAT) issue but if you dig a bit deeper India has been an outperformer for a while and a fair amount of profit taking is never an issue and for a long time India was probably the only shining spot in the so-called emerging market space but suddenly you have other options coming up like China suddenly became attractive, even Russian markets are looking better than what they were looking before.

So it is only fair for the money to find its way to a market which is relatively offering more value than India. So I wouldn’t read too much into this out move. Of course this has got to do with managing the larger, broader issue with regards to reforms and communication but would it be a repeat of what the issue was in 2013, I don’t think so.

As regards to your second question about hazarding a guess on where the levels would be I honestly wouldn’t want to point a level but I would broadly think this kind of a move on the rupee would not be a concern either to the Reserve Bank of India or to the markets. The outflow hasn’t been fairly orderly when you see it in the context of the amount of inflow that India has seen in the last 12-18 months. So, some kind of money going out is something which even the Governor had alluded in his speech. So we should be prepared for such outflows.

Anuj: At what rate do you think the RBI would get uncomfortable if today’s level is not that level yet?

A: I honestly don’t think this move up on the dollar-rupee would be a big concern for the RBI because a) they have been making this a statement public for quite a while that rupee could see depreciation, b) RBI has been building its reserves for an eventuality like this. When Foreign institutional investors (FIIs) put money into the country, it is but natural to be prepared that a lot of this money would also choose to go out when they see relative value elsewhere and c) we have seen a lot of asset markets getting dislocated over the past few days so it is not something which is unique to India.

Probably India has seen a lot more of re-balancing given the amount of money which has come into India in the last 12 months so I have to look from the RBI issues, the level per se would not be a matter of concern for me however I would definitely be thinking that at any levels close to the USD 64.50-64.60 etc we should start seeing a lot of interest coming in from people who want to sell dollars because come to look at it, forward premiums at about seven, seven and a half percent still makes a lot of good sense for an exporter who is holding dollars, so a sharp rupee depreciation on a sustained basis from here looks unlikely, we should start seeing some interest coming in from sellers plus equity markets look fairly valued now.