Rupee may weaken to 62.50-63/$; RBI may not intervene: DBS

The rupee today marginally recovered to 61.81 levels to the dollar after falling to a 9-month low but it is likely to weaken further in the coming weeks says, Arvind Narayanan, ED & head of sales, treasury & markets at DBS in an interview to CNBC-TV18.

The rupee would by and large rupee track Asian currencies around the world and could weaken to around 62.50-63 to the dollar, feels Narayanan.According to him rupee on a relative value basis looks overvalued because despite India seeing inflows to the tune of USD 35 million into both debt and equity, rupee did not strengthen significantly. Moreover, most of the Asian currencies are also depreciating significantly now, he adds.When asked if RBI would intervene to arrest this fall, he thinks they would not alter the global trend of weakening Asian currencies but may try to arrest volatility.Below is the transcript of Arvind Narayanan’s interview with CNBC-TV18's Menaka Doshi, Anuj Singhal and Senthil Chengalvarayan.Menaka: What is your outlook on the rupee here-on whether you expect to see continued weakness?A: Rupee would probably track what is happening to the other Asian currencies around the world. So, if you see the Japanese Yen has been weakening quite consistently over the past couple of weeks. So it is no surprise that Rupee has weakened. By and large the currency would track what is happening to the competing currencies globally. So my sense is we will probably some more rupee weakness in the coming weeks.Senthil: It hasn’t so far, has it? The worry in India for exporters was that it was really holding on, it was playing completely contrary to the rest of the world with the dollar. So, what has changed that it will now start tracking the rest of the global currencies?A: India was or has been the recipient of a huge amount of capital flows as well. So, the whole point to be noted is despite getting FII inflows in debt and equity to the extent of about USD 35 billion, rupee did not strengthen significantly and that is also a point to note. You have seen the central bank buying dollars at lower levels. So, by and large the market believes that he floor was set for the dollar rupee. Any time dollar rupee goes below a certain level you will probably see central bank buying US dollars to beef up its reserves. Once that happens then broadly a mindset is built in for rupee weakening on the other side. However earlier on whenever dollar rupee went higher you saw exporters coming in and selling in because the premiums were quite high. Now with some of the Asian currencies depreciating so much there is an inherent belief that rupee hasn’t kept pace and on a relative value basis rupee definitely looks more overvalued. So, the market is a lot more confident that rupee can afford to weaken.Menaka: To what point do you think it will weaken?A: Fairly difficult to call a level because like I said this could probably be a constant evaluation against how the other currencies in the basket are performing but looking at the trend now and believing in the fact that US dollar looks lot more stronger going forward I would imagine rupee would probably gradually weaken on the higher side and move more towards 62.50 – 63.00 to the dollar those levels.Menaka: At what point do you think that the RBI will step in a little bit more aggressively? How do you gauge the RBIs comfort level?A: RBI would not step in at any point in time to alter the global trend. If rupee has to weaken and if rupee is weakening probably RBI would not intervene. What RBI would probably do is probably manage the volatility to a great extent. So, if rupee weakens unnecessarily due to speculation or rupee weakens excessively due to other factors then probably you might see them coming in to smoothen the volatility but otherwise if other currencies around the US dollar are weakening RBI I think would probably be okay with the rupee weakening as well.Anuj: We have seen quite a bit of rally in stock markets today. Is there a chance that if FII flows resume, for last 2-3 days we haven’t seen FII inflows, if FII flows resume we might see strengthening back of the rupee back towards 61 or 60.50 or so?A: I don’t think so because probably much before that you might see probably FX buying either by nationalised banks due to reasons for the RBI or for defence or oil reasons you will see dollar buying coming in. So, probably if you see other economies weakening their currencies we probably would not allow our currency to strengthen significantly because that would go against us especially at a time when growth seems to be recovering etc, we wouldn’t want the rupee to be unnecessarily more expensive than the rest of the currencies.