Dominic Bunning, Associate - Fx strategy, HSBC expects the rupee to be stable over the next three months. The Indian is currently trading around 61.99 (13:00 hrs) against the US dollar.Speaking to CNBC-TV18, Bunning said the rupee is likely to trade between 60-63 in the near-term and 62-62.50 in the medium-term, respectively. "We do think the dollar is going to strengthen for the course of 2015 and we see dollar-INR 63/USD at the end of next year," he added.Below is verbatim transcript of the interview: Q: What is your call on the Indian rupee right now which has been one of the most resilient currencies in wake of strong dollar. How would you approach it from hereon?
A: We still think the rupee is going to remain pretty resilient on a regional level. We do think the dollar is going to strengthen for the course of 2015 and we see dollar-INR 63/USD at the end of next year. But in terms of the regional picture we think that the reforms that have been coming through from Parliament as well as the changes that we are seeing in the external account in India and also the improvement in inflation hold point the fact that the rupee continues to be resilient through the course of next year.
The recent news that we just heard about the potential for that reforms to get passed in winter session adds the optimism around the currency for now.Q: Your sense in terms of the rupee in the next three months, any targets that you would see in the next three months and then eventually six months as well going into 2015?
A: The currency is going to be stable over the course of the next three months and that comes down to a couple of factors. Partly, it’s the external improvement that we spoke about just now and also domestically the RBI is controlling volatility in the currency market. We heard the RBI comment that they would try and keep the currency at 60-63/USD range until the end of March and that seems to be quite likely from our perspective.
There is some underlying concern, maybe inflation trend, but once we get through the first quarter of next year we will have a bit more confidence on that and it will be a bit easier for RBI to decide whether they will allow volatility. But for the time being we potentially see some further inflows in Q1 particularly if we get more positive reform news coming out in the next few weeks and we see dollar INR trading around 62-62.50/USD area for the course of the next few months.Q: How will rupee possibly do versus other emerging market peers in 2015? Where does the rupee rank in that list?
A: Rupee will be up towards the top of our list. When we look at the factors that will impact currency markets in the emerging space next year and the external factors like the stronger dollar story, a weak euro and yen, the INR generally tends to hold up pretty well in an environment where euro and yen are weakening.
A part of that comes down to the fact that it used to have quite a strong carry in India. So if rates globally remain relatively low because the European Central Bank (ECB) and Bank of Japan’s (BoJ) actions, it does help to spur some positivity around high yielding currencies. Also, on domestic side India will certainly feel the benefit of low oil prices and better terms of trade over the course of the next few months.
The reform process that I spoke about sets India apart from a lot of emerging markets (EMs) currencies where you are seeing slow reforms with not nearly the pace of getting in India.
Fx policy and the RBI will continue to curb volatility on both sides of the market and that compares quite favourably to a lot of currencies where maybe the central bank is willing to allow a lot more currency weakness because there is much inflationary pressure.
For example in Asia, we would have the INR as one of our top performers in the region along with renminbi and Indonesian rupiah. Even though we see a bit of a weakness versus the dollar, rupee outperforms in the likes of the Malaysian ringgit, the Singapore dollar and the Korean won for example.
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