See CAD, BoP improving; 10-year at 9%: HDFC Bank

Ashish Parthasarthy, Head Treasurer, HDFC Bank analyses the comments made by Urjit Patel, Deputy Governor, RBI on the trade deficit number and its impact on rupee.

Urjit Patel, Deputy Governor, RBI had in his interview to CNBC-TV18 said, " The trade deficit for this October is half of what it was last October, which is the comparison we need to make because there is seasonality involved. So, while the deficit is higher than in September that is not the correct comparison." Having a deficit that is 50 percent of what it was last year for the same month boards very well for the trade deficit and the current account deficit, in fact is the most important fundamental factor that should impact the rupee, he added. 

Parthasarthy expects to see an improvement on the current account deficit(CAD) front as well as on the Balance of Payments (BoP) but see rupee subject to sentiments in global market.

He sees the ten-year yields around 9 percent.

Below is the verbatim transcript of his interview on CNBC-TV18

Q: Did you hear what Urjit Patel had to say and do you think that now the rupee should find some bit of support or do you think it is still gullible and vulnerable to global forces?

A: I heard the Deputy Governor and I am quite in agreement in his view. There would be a significant improvement on the current account (CAD) front as well as on the Balance of Payments (BoP).

However, the value of the rupee will be subject to sentiments in the global market. Whenever you have this thing of early tapering coming in, it will definitely impact emerging market currencies like the rupee. The extent of the depreciation or the pressure we have seen in the past, I do not think we are likely to see that again.

Q: In spite of it the rupee did not respond much. The dollar got a little cheaper after the trade deficit number, but not much?

A: At this point in time the external sentiment is much stronger and this is obviously an historical number; the cash flow impact of it has already been priced-in in the exchange rate. However, given what is being forecast, fundamentally rupee now is in a much-much better position than what it was a few months back.

Q: What is the sense you are getting on the bond markets? After touching 9.13 percent what is the near-term range likely to be? What caused this recovery? We did not hear any Open Market Operations (OMO) announcement after all.

A: If you see, post the policy 10-year was around 8.5 percent and it went all the way to 9.10-9.15 percent, that is 60-65 bps. Obviously, there will be a pullback if there is a strong upmove over a short period of time.

I think it is more likely to be around the 9 percent levels.

Q: Even without an OMO?

A: Even without an OMO; depending on pressures. If there is no OMO at all, you will see higher yields at every auction, however if there is an OMO in the interim, it will always be a pullback. Every auction will definitely cause the yields to move up.