Mauritius tax decision unlikely to impact rupee: Nomura

India-Mauritius Double Tax Avoidance Agreement (DTAA) is finally tweaked, and will be effective from April 1, 2017. The treaty will fetch India its right to tax capital gains in the new treaty.But the move could have a short-term impact on capital markets, including currencies.Neeraj Gambhir, MD & Head- Fixed Income at Nomura, said that there are still concerns on the tax front, and the currency markets would watch out for capital flows.The treaty may also have implications on India-Singapore treaty, Gambhir said, adding that that it will also be important to watch out for investments that are coming through Singapore.Even as the USD has been strong against the emerging market currencies for the last few days, the rupee level has been exceptionally stable at around 66.75-67 levels, Gambhir said, adding that it could strengthen going forward.Below is the verbatim transcript of Neeraj Gambhir’s interview with Latha Venkatesh and Sonia on CNBC-TV18. Latha: The dollar opened as high as 66.82, now 66.79, how have the rupee guys taken this news? A: As you can see from the opening moves, some concern is there with regards to this particular movement on the tax front. Particularly I think people are going to watch out for what does it do to capital flows. Even though it is a forward looking change, it is a prospective change, there is going to be some implication and I think at this point of time everybody is trying to understand the exact implication of it. I should also point out that while this is something which is being applicable to India-Mauritius, I think there are some implications of this on India-Singapore Treaty as well which also we are looking at because a lot of the investments are also coming through Singapore. Latha: Shaktikanta Das told us very clearly yesterday that the Singapore Treaty has a clause saying that it will be adjusted to changes in the Mauritius Treaty. A: So, from our perspective that is something which is also equally critical that we are watching out to see as to what implications does that have because a lot of institutions had moved away from Mauritius and Singapore. So, you need to see what implications that has on the flows. So in the short run I think the market is trying to understand the full impact and given the fact that dollar has been trading a little stronger against emerging market currencies off late for the last few days, I think this is just an addition to that trend. Sonia: If you had to just give us a level on the rupee that you are watching because so far the rupee has been pretty stable in the last fortnight at around that 66.50 zone. What is the expectation now? A: I would say that rupee has been exceptionally stable. If you look at some of the other Asian currencies, for example Malaysian ringgit and all, they have weakened somewhat more versus dollar. On rupee here, we are between 66.75 and 67; I think that is the range for the time being. If you break 67 on the higher side then we could see a sharper move upwards. However, for the time being, even though it is move 0.25 to 0.50 everyday, I think still 66.50-66.75 zone is being maintained. Latha: Who will watch what, will the rupee market really watch actually what the foreign institutional investors (FIIs) are doing and then take its clue or will it be the other way round? A: I think the currency market watching for the capital flows. I think the market needs to understand the impact on capital flows is a result of these changes in tax treatment.