Talking about the impact of the US Federal Reserve’s decision to trim its bond-buying programme by USD 10 billion and the consequent up-move in the US dollar against most currencies including the Indian rupee, Sameer Goel, Head of Asia Rates & Currency Research, Deutsche Bank, said he believes the Indian currency may be impacted in the short-term but improving fundamentals would likely shore it up next year.
Also read: Fed tapers monthly bond purchases by USD10 billion, rates unchanged
Here is the verbatim transcript of the complete interview.
Q: What is your reaction to the Fed policy? How do you see emerging market currencies move? This morning although there has not been such a big selloff, most emerging market currencies are lower versus the dollar.
A: I think the Fed move was fairly anticipated and I would argue the reaction we have seen since the decision only tells you that the tapering is much better internalised by the markets already.
As far as Asia and emerging markets are concerned, my point would be it is a very dovish “taper-lite” if you could call it, and what it has been accompanied by is modestly higher treasury yields, definitely sharply-higher dollar-yen.
These are both themes we will carry with us into 2014, very important for Asia, but then the key point for Asia for next year would be that it would not just be about US repricing and about yen weakness but very largely about the interplay of a lot of themes, whether it is energy prices, better growth, political risks in several places and it is going to be the interplay of those themes which would dominate how Asian currencies and EM very broadly responds.
Q: The emerging markets started off on the green and now all of them have given up. Should we say that tapering actually will impact emerging markets negatively? The positive is that it is nothing like the intensity of May.
A: There is a mix of two things. I would make the point again that tapering has been very well anticipated and you need to see the reactions in a broader light of the fact that they are still very muted to the fact that there is a significant shift in global policy framework with the start to the end of accommodation, which has been with us for several years now. In that context, the quantum of the reaction very clearly tells you that it was very well anticipated.
It is true that allocations towards Asian markets or emerging markets in general will be challenged. I think the hurdle for emerging markets to attract sustained inflows in the face of this tapering is certainly higher. So I do think that will be a negative, but then equally the fact that we have got the uncertainty of tapering now behind us, at least with the beginning of this tapering the focus can shift to other issues and like growth-oriented source for next year.
Q: How would you tackle the rupee now? Do you think that 61.6-61.7 that we saw is going to be the high for the near-term?
A: For the near-term, potentially [yes]. The markets are responding to that negative aspect of tapering and what it implies for repricing of global rates down the line. However, in my opinion, INR will significantly outperform the forwards next year.
Given the improvements we have seen in these external fundamentals, that will come back to put the rupee in better shape than what we have seen this year or for that matter last year. I do think it is the underlying fundamentals which will finally come to determine the rupee's movements much more.
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