See rupee at 59 against USD by 2015-end: Societe Generale

So, what they have done is with the interest rate is to attempt to prevent the appreciation of the Swiss Franc following the removal of cap from having too negative an impact on the inflation situation. Going forward it is very clear that without the Euro-Swiss 1.20 floor out of the way now and with the appreciating Swiss Franc deflation in Switzerland is going to deepen. So, the Swiss National Bank clearly will have to do more to try to prevent that.

What is quite important to note is that they are not allowing the Swiss Franc to actually float freely. So, following the decision on removing the floor yesterday we also saw intervention in the market to keep Euro Swiss above the 1 level and indeed it continues to trade above the 1 or parity level today. It traded as low as 85 cents yesterday in the immediate aftermath of the decision. However again intervention has held it up.

What this means is that the Swiss National Bank we will believe will continue to try to manage the currency rather than to allow it to free float ad this is in order to stop the deflationary pressures from piling up too much on Switzerland.

In terms of the bigger market impact we believe that the Swiss National Bank decision is negative for Euro. Essentially it has removed a major buyer of Euro from the market. Yesterday we saw Euro Dollar trading to 11 year lows and quite apart from Euro against dollar Euro Sterling also broke to the downside through quite key technical support levels.

So, big picture is Euro will continue on a down trend. Of course we do have the ECB policy meeting next week on Thursday where sovereign QE policy is expected to be announced.

Menaka: Isn't it good news that the Euro will continue on a downtrend, good news at least for peripheral European countries?A: At the margins it will definitely be helpful although we do think that the Euro really needs more than just QE and a weaker Euro. For example the banking system, the credit markets in the euro are remains quite fragmented. We have very good liquidity and credit conditions in Northern Europe for example but rather quite poor ones in the periphery like in Spain and in Italy. That is obviously beyond the mandate of the ECB but the ECB is trying its best essentially to support the economic conditions in the periphery. The best its trying to do will be QE in order to push the currency lower over time.

Menaka: I am curious about the collateral damage of what the Swiss National Bank did yesterday the subsequent big jump up in the Swiss Franc, the chaos that it sort of put out in the currency markets over the last 48 hours, do you expect substantial collateral damage in the days to come because the Swiss Franc is I am told the 7th largest reserve currency in the world?A: Yes, following the Swiss National Bank decision yesterday volatility in the currency markets increased quite significantly. I would say that although the Swiss Franc is the 7th largest there is quite a big jump in terms of the holdings between 1 to 2 and then to 3 and it actually gets quite small once you get beyond the 3rd largest reserve currencies. So, I am not that concerned about the direct impact of Swiss appreciation outside of Switzerland. There would definitely be a major impact in Switzerland itself and indeed we saw yesterday the Swiss equity index falling 12 percent and more on an intraday basis. So, that was huge domestic impact. However outside of Switzerland what it adds to I think is a sense that volatility is likely to rise this year on account divergence in monetary policy across the world. So, essentially what we had yesterday was a monetary tightening by the Swiss National Bank. Of course this has to be juxtaposed against the monetary easing that is expected from the ECB next week.Menaka: I just want to know if you have a target on the rupee at all?A: We do have a forecast for the Indian rupee from our EM5 and we are expecting it to end the year at 59 to the dollar. Indian rupee at 59 by the end of 2015.