The rupee continued depreciating Tuesday and fell way below 63 against the dollar following the global rout. Speaking to CNBC-TV18, Nizam Idris, head of EM FX Strategy, Macquarie says India may see some outflow of funds but that is nothing close to crisis.According to him, the Indian currency will stabilise if oil prices attain some stability. He expects rupee to hover around 64-65 against the dollar going ahead.Below is verbatim transcript of the interview:
Q: The rupee resilience has gone, the last four-five days are clear evidence to that but it is still a relative outperformer compared to a lot of other emerging market currencies. What is your call on the rupee now? Do you see it going to 65/USD or worse still, maybe test the previous lows?
A: It all depends on down of oil. For me it is reminiscent of what happened in 1998. Oil prices fell from USD 20 odd to slightly below USD 10 at that time, so about 60 percent fall in oil prices that led to credit crisis in Russia, Venezuela, Brazil and the uncertainty that perpetuated into sell-off in some of Asian economies and in particular those negative current account and fiscal account.
The situation remains slightly similar here. India still has a current account deficit of around 2.5 percent over the last 12 months, fiscal deficit around 4 percent. I think this is very different from the fact that the currency is more freely floating than ever before and you have foreign reserve of about USD 300 billion, about ten times more than where it was in 1998.
If oil price continues to fall, the credit risk in the emerging market intensifying, we could see further outflow of funds from India but we are not in a situation where we are close to a crisis for India specifically. It is probably just being drag along with the like of yen.Q: Since you brought up the 1998 comparison, do you think that we are anyway near that? At that time, all the Asian tigers were in crisis; Thailand, Korea, Taiwan starting with Thailand even Malaysia abrogating all capital conversion measures. We are nowhere near that, even if Venezuela or Russia would to repudiate debt, are we anywhere near comparable to ’98?
A: No, we are not. At that time the economy was running huge current account deficit across the entire continent barring Singapore and Taiwan and also at that time forex reserves were much smaller than where we are right now. More importantly, at that time currency redeems were very different; most countries were protecting currencies there because they wanted to import capital at a better price. We are not in such kind of situation. I do not think this is going to be an EM wide crisis.
Q: Rupee goes to how much?
A: Nearly 64-65/USD is possible. I wouldn’t rule that out right now but as soon as oil prices were to stabilise then there will be lot more equity and bond inflows back into India to stabilise the currency and also mean better level to go long the rupee.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
