Rupee recovered 15 paise to 64.08 against the greenback in early trade Friday, led by an increase in dollar selling by exporters and banks. The Indian currency slipped below the 64-mark to end at a 20-month low of 64.23, depreciating 69 paise against the dollar Thursday due to foreign investors pulling out money from India amid concerns over MAT and delay in the passage of key reform bills.
Speaking to CNBC-TV18, Ashutosh Khajuria, President – Treasury, Federal Bank said anything above 63.91 would have established dollar strength over rupee. According to him, 63.90 must form the base for the rupee now.
He does now expect a sudden fall in the rupee and expect the currency to trade in 63.90-64.50 range against the dollar.
Below is verbatim transcript of the interview:
Q: Yesterday we saw the kind of decline, the rupee going all the way to 64.30/USD thereabouts. Even now it is at around 64/USD. You think that would be the new equilibrium?
A: Today’s morning is much better than yesterday’s. Entire day we saw blood bath in all fronts whether it was on equities side, bond side or even in currency. Any close above 63.91/USD would have established the dollars strength vis-à-vis rupee and that is what most charts suggested. Yesterday when it closed above 64/USD, we now see this about 63.90/USD to be somewhere forming the floor.
Whether it is good, bad or whatever it is, the fact is whether you see the six currencies basket or 36 currencies basket which Reserve Bank of India (RBI) follows for Real Effective Exchange Rate (REER) calculation, rupee was slightly overvalued.
With this move around 64/USD or so that correction has happened. With euro’s strength vis-à-vis dollar, vis-à-vis euro a rupee has almost found its place because there was steep depreciation of euro that had happened in past one year vis-à-vis dollar.
Rupee’s depreciation vis-à-vis dollar was much lower than that. Around 24 percent fall was there of euro and we had only around 5 percent fall vis-à-vis dollar. So, that appreciation of rupee vis-à-vis euro, sterling and yen now stands corrected to a great extent.
I think this should be good for exporters particularly those that have been invoicing other than dollar major currencies.
Q: The opinion yesterday that we got on the rupee was 65/USD is likely and some of the opinion was that maybe by the year end we could see 65/USD definitely. What is your sense, could we see 65/USD, if so, by when?
A: The market gets driven by momentum. In July, August and September 2013 it was like a bottomless spread which started moving from 56/USD or so and did went to 68.85/USD on August 27.
People were talking of rupee going to 80-90/USD and some even talked of even 100/USD. So, when sudden movement happens it triggers lots of cut losses and various other possessions, people reverse their stance and as a result of that it creates a panic situation.
This is where our central bank has lowered that type of volatility through both side interventions. When it tends to appreciate then also they pick up dollars from the market and when it suddenly depreciates we have been seeing them supplying green bags.
Overall, with the strong warchest being available I do not see sudden fall in rupee happening but 63.90/USD to 64.50/USD should be the range for the near future or so.
Q: In case we were to see a recovery in stock markets and some flows coming back into both equity and debt markets, is there a chance of the currency gaining some of the lost ground, making a move towards 63.50/USD as well or is that a low probability outcome right now?
A: I fear central bank may come and mop up the dollar supply if that happens because they would be happy with a gradual depreciation of rupee looking into the inflation differential.
If we see US inflation still being around say 1.50 or so, I would see RBI acting to see that the inflation corrected parity is maintained to the extent possible.
Q: How much higher Brent crude prices and maybe a lower rupee is now factored into the 10-year? Yesterday it closed around 8 percent and we have pulled back today but mostly according to traders because of short covering but in your sense where can we see the 10-year head if in case maybe Brent crude even hardens?
A: In the last three sessions, the Brent price hike has definitely impacted the bond yields in India. However, more of it is being attributed to how the bond markets are behaving in rest of the world. As the previous speaker was talking about, India is no different as far as the market reactions are happening, the way market is behaving.
We saw US yields correcting by about 10-12 basis points and the same thing got translated into India’s benchmark also wherein we saw a correction by about 7-8 basis points happening from yesterday’s 7.99 percent to somewhere around 7.91-7.92 percent levels or so.
It is not happening to any particular geography or a couple of geographies, it is happening like a wave. Whether you see the German bonds or you see Italian, Spanish 10-year yields or the US treasury, all these moving in tandem for at least last two sessions or so.
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