“I think the fact that the currency has weakened in this calendar year or so by and large in my view at least is a good thing," said Hitendra Dave of HSBC India.
Hitendra Dave, head of global banking and markets at HSBC India, spoke to CNBC-TV18 about the home currency and shared his outlook.
“All of us have been debating what is the right level of currency and I am sure almost all of us will know the right answer in hindsight. However, you do have a situation where India has a famous current account deficit. The largest reflection of that is oil, and every time oil goes higher by USD 2 per barrel or so, people make their assumptions around the current account and therefore, they make their assumptions on the amount of the dollar that the country needs, the amount of capital flows coming in or leaving is widely known and therefore further adjustments take place,” he said.
“I think the fact that the currency has weakened in this calendar year or so by and large in my view at least is a good thing. I also think it is a good thing that we haven’t followed historical practices of drawing some kind of a red line to say rupee cannot cross this particular number. I think the currency just like stock prices, bond prices and commodity prices, has to find its own level which is the equilibrium between buyers and sellers,” he added.
Talking about the currency depreciation, Dave said, “The currency, because it has a macro impact, you do sometimes have the central banks of individual countries coming in to absorb a lot of dollars or supply a lot of dollars if they believe this is temporary frictional demand. However, overall I think if you have a current account deficit (CAD) and if you have a Balance of Payments (BoP), which is largely negative at the current juncture, then it is fine for the currency to depreciate. I think some of the noise around this is a bit excessive according to me. I think this is a healthy and orderly correction and is one of the things which will eventually correct the CAD."
"I think there is a nervous calm which as returned to the market. I don’t think it is business as usual but I also don’t think it is as bad as it seems about 10 days back or so,” he added.
Watch the video for more.Source: CNBC-TV18