HSBC expects rupee around 62/USD by year end

Some of the recent Reserve Bank measures to combat rupee volatility may be less needed because actually the volatility has gone down, says Paul Mackel of HSBC. The rupee earlier in the day was trading at a two-month high on rumours that the RBI may stop oil demand swap.

Also Read: Rupee rises tracking continued sell-off in dollar vs majors

He says there is still some very good yield in the Indian rupee, Malaysian ringgit and Brazilian real. But he sees very strong uptrend for the euro. The shutdown in the US and continued speculation about delay in tapering by Fed will hurt the dollar and is going to keep it on the back foot for some time, he adds. He sees the rupee at the end of the year at around 62/USD.

Below is the verbatim transcript of Paul Mackel's interview on CNBC-TV18

Q: There was a bit of a reversal in trend which came into the rupee today based on some amount of speculation that may be the oil demand swap which has been in the rupee market to help the rupee might now be taken away but it could possibly happen in a more phased manner. What is your thought on the same?

A: I think this story really should not be much of a surprise because some of the measures that have been rolled out more recently to calm the volatility in the currency may be less needed because actually the volatility reducing for the currency and this would just be another extension of that. Of course we have to bear in mind that Fx swap window was going to expire in the end. But even if you look at the recent cut in the marginal standing facilities over the last couple of weeks, it has been pointing to some degree of comfort by the authorities with the November anyway. So I am not reading too much into this in terms of any surprise.

Q: What are your thoughts on the dollar vis-à-vis the majors and the emerging market (EM) currencies?

A: I think we are still in a very much pick and choose environment for how the dollar will trade against certain EM currencies. I think the ones where investors seem quite positive at the moment would actually include the Indian rupee. Also something like the Malaysian ringgit, Brazilian real as well where there is still some very good yield. But for something like euro it is still in a very strong uptrend environment at the moment. I think the shutdown in the US and continued speculation about delay in tapering by Fed is really hurting the dollar and is going to keep it on the back foot for some time. It seems like the upper momentum in the euro will probably continue at least in the short-term.

Q: How are you looking at the rupee, do you think it strengthens beyond 60/USD as well or do you think at that point the RBI will start putting these kinds of demands back in the market or loosen the other tight measures they have put in?

A: Our view at the end of the year is that dollar rupee should finish around about 62/USD. I think many central banks have had strong or big challenges with their exchange rates and exchange rate volatility this year should be considering whether they need to be a little bit more defensive and accumulate reserves in this calmer volatility period. Further you are still going to be faced with the environment that the Fed will eventually want to taper, that story has been delayed but it could come back very much in front of investors and markets thinking come the first quarter of next year and beyond we could be very much faced with this dilemma yet again.