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Gaurav Garg, Asia foreign exchange & rates strategist, Citi, says that the current levels of 55.50 on the USD/INR, is incorporating the negative expectations in the market including non passage of the FDI in insurance and pension funds. The current levels will stay intact for the time being.
Also read: Nifty faces strong resistance at 5650: Sudarshan Sukhani
Below is the edited transcript of his interview to CNBC-TV18.
Q: What is the short-term call on the rupee now?
A: The current levels of 55.50 on the USD/INR, is incorporating the negative expectations in the market including non passage of the FDI in insurance and pension funds. The current levels will stay intact for the time being. With the global sentiment being supportive, assuming the optimism on the fiscal cliff stays intact it should curb the pressures on regular trade imbalance USD/INR flows. The current levels has already priced in the factors.
Q: With what kind of a downside risk, if it stays at 55.5 what do you think the worst case level is for the end of December?
A: The broad range of the rupee till December end will be about 54.5-56.5. With global uncertainties, the topside could breach 56.5 if there developing negative outcomes on the fiscal cliff. The level of 54.5 is susceptible to risk if there is some positive developments on the domestic front. Be it passing of the insurance and the pension funds, the FDI proposal or a concrete road map to arrest the fiscal deficit so, these factors will determine the range.
Q: A year earlier when we hit 55 level many people pointed out that it was an emerging market problem. Many other currencies were doing the same. Where do you see the rupee, is it because of what is happening with emerging market currencies and how much do you think is a local problem, this frustration with policy not moving?
A: In domestic factors we saw sharp move lower-end USD/INR after the mid-September reforms. There was specifically for USD/INR but that was overlapped with the quantitative easing and additional easing from Europe. That gave the entire Asia FX and emerging market currencies a boost.
Now it is recovering on the way up but if we look at the currencies which are having current account deficit and fiscal deficit both amongst other emerging markets like South African Rand or Brazilian Real for that matter then those currencies have held up to those levels. They didn't appreciate much as aggressively as India did.
Also read: Nifty faces strong resistance at 5650: Sudarshan Sukhani
Below is the edited transcript of his interview to CNBC-TV18.
Q: What is the short-term call on the rupee now?
A: The current levels of 55.50 on the USD/INR, is incorporating the negative expectations in the market including non passage of the FDI in insurance and pension funds. The current levels will stay intact for the time being. With the global sentiment being supportive, assuming the optimism on the fiscal cliff stays intact it should curb the pressures on regular trade imbalance USD/INR flows. The current levels has already priced in the factors.
Q: With what kind of a downside risk, if it stays at 55.5 what do you think the worst case level is for the end of December?
A: The broad range of the rupee till December end will be about 54.5-56.5. With global uncertainties, the topside could breach 56.5 if there developing negative outcomes on the fiscal cliff. The level of 54.5 is susceptible to risk if there is some positive developments on the domestic front. Be it passing of the insurance and the pension funds, the FDI proposal or a concrete road map to arrest the fiscal deficit so, these factors will determine the range.
Q: A year earlier when we hit 55 level many people pointed out that it was an emerging market problem. Many other currencies were doing the same. Where do you see the rupee, is it because of what is happening with emerging market currencies and how much do you think is a local problem, this frustration with policy not moving?
A: In domestic factors we saw sharp move lower-end USD/INR after the mid-September reforms. There was specifically for USD/INR but that was overlapped with the quantitative easing and additional easing from Europe. That gave the entire Asia FX and emerging market currencies a boost.
Now it is recovering on the way up but if we look at the currencies which are having current account deficit and fiscal deficit both amongst other emerging markets like South African Rand or Brazilian Real for that matter then those currencies have held up to those levels. They didn't appreciate much as aggressively as India did.