Expect rupee in 61-63/$ range for next 2 months: HDFC Bank

Ashish Parthasarthy, head treasurer, HDFC Bank expects rupee to be in 61-63/USD range for the next two months. However, he says factors like what will happen when oil demand comes back and the sentiment around New Year, might swing the currency movement though the fear around the tapering of the monetary stimulus by the US Federal Reserve Bank is kind of gone away.

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Speaking to CNBC-TV18 on the upcoming Reserve Bank of India policy on October 29, he says, due to high September inflation at 6.5 percent and rupee depreciation from levels of 54-55/USD to 61/USD, chances are that the central bank can hike the repo rate to 8 pecent instead of 7.75 percent as expected by most economy watchers.

Below is the verbatim transcript of Ashish Parthasarthy’s interview on CNBC-TV18

Q: What will be the sequencing, do you think even before October 29, the Reserve Bank of India (RBI) may put in the oil demand?

A: Unlikely. I think till this FCNR scheme is on, RBI will continue to supply dollars to the oil companies and depending on what success the FCNR scheme gets, one will wait and see what they do after November 30.

Q: What do you think could be the sequencing of steps from RBI from now until October 29? Do you expect any step on the reduction of marginal standing facility (MSF) rate or increasing the repo cap at all given the stability in the currency?

A: RBI will wait for October 29 and announce whatever they need to like getting the MSF rate at 100 bps over the repo rate and then increasing the amount available at the repo rate. I do not know whether we will go back fully to what we were before July 15 but the amount available at the repo rate would definitely be higher than what is available today.

Q: Will it be 8.75 percent on MSF, 7.75 percent on repo rate on October 29?

A: I guess that is the most likely scenario but given the fact that inflation readings are much higher than anticipation and given the fact that rupee has actually depreciated from its levels of around 54-55/USD to 61/USD, there is always a chance that it could be a one time adjustment to repo rate of 8 percent, it is a small chance but you cannot rule it out totally.

Q: What is your expectation on the rupee itself, 61.50/USD today but by and large it has been more than a 10-12 percent gain since August low, what does the range look like?

A: In the next two months, we are looking for a range in between 61-63/USD. We may not see 63/USD unless on certain days and you can see below 61/USD on certain days. However, the broad range should be 61-63/USD for the next two months and one will have to wait and see what happens when the oil demand comes back and if it comes back. Also, we have to watch the sentiment once we enter the New Year and so, it will depend on a number of factors.

Otherwise, it looks reasonably healthy for the rupee especially given the fact now that the quantitative easing (QE) tapering fears have kind of gone away and given the uncertainty in the US debt ceiling even now has not gone away. The tapering could put off slightly more than it would have been otherwise.