Rupee's worst over for now; see it at 62-64/$ range: BoA

The rupee has seen an appreciation of around 8-9 percent since the start of September. Currency analysts feel that temporarily, the worst may be over for the rupee. Jayesh Mehta of Bank of America tells CNBC-TV18 that it has strengthened due to reduction of gold imports, RBI initiatives on FCNR deposits, delay in tapering of QE by US Federal Reserve, and reduction in global oil prices. He expects it to be in the 62-64/USD range.

Also read: Rupee appreciation may add downside pressure on Silver Below is the edited transcript of his interview to CNBC-TV18. Q: There has been a lot of stability in the rupee and mild appreciation in this week too. What would you attribute it to? A: We have got benefited by two main factors, two internal and external each. In terms of internal factors, the new governor did announce the scheme for raising foreign currency, which is FCNR (B) and tier I capital. That will bring in at least USD 15-18 billion. It would give us some breather for at least next three-four months. Second, the gold import has clearly reduced and it looks like the trajectory is reducing further. So there are two positives there. On the global side, September tapering did not happen and the oil prices has stabilised. I think all these four factors get together definitely helped us. Again, we were of the view of 62-64/USD being the right level. We were into an overshooting territory at that point of time. We are fairly stable and hope nothing changes dramatically in next one-two months. Q: What level will the RBI be comfortable with? Would they still like the currency at a little bit of an depreciated level versus its fair value simply to boost exports and help the current account deficit (CAD)? A: I don’t think they have a level in mind. They would, at some point of time, be adding dollars to the reserves. Maybe the market is thinking of 61-62/USD or 60/USD but at some point of time, they would be buying dollars from the market. Slowly they will also test it out as they feel comfortable to get the oil companies back into the market from which it has moved out. So yes, these are the two things we need to watch for at that point of time. But they will take that step only if they will feel fairly comfortable at a consolidated at a level and does not move dramatically. So maybe in a month’s time we should see something there. Q: Is the worst then over for the rupee as we do understand that option which was available or that oil window option also might be withdrawn slowly. Or can we test those August 28 lows of around 68/USD? A: For the time being the worst is over. We need something from the government side, not from the RBI side. We need the mining to start, exports to resume or at least the imports to reduce. Something on the macro and that three months window we have to do work on the macro because eventually tapering is going to happen. We need to work during that window to make sure our CAD balance as of right now whatever the indications we are getting is quite reassuring. That assurance if RBI gets maybe they can then act aggressively on that.