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     Farex Mudiripoyina Bewarse Username: Farex Post Number: 15092 Registered: 10-2010 Posted From: 76.220.127.55 Rating: N/A |
http://www.moneycontrol.com/news/rupee/can-rupee-break-7036-yes-if4-conditions-a ren%E2%80%99t-met_938863.html The rupee has already broken the 64 mark against the dollar. Market analysts fear that the Indian currency may touch 70 against the dollar in the near-term. According to Nizam Idris, head - EM FX Strategy of Macquarie, the rupee may break that psychological mark based on these four conditions. 1.Trade deficit fall 2. Policy insuring long investment 3. Capital control 4. Interest rate correction Below is the verbatim transcript of his interview on CNBC-TV18 Q: Considering that we broke 64/USD on Tuesday, do you think the range for rupee has now decisively moved and maybe its floor would now be 64/USD and beyond? A: There need to be more clarity on a few things, the upside in dollar/rupee is over if the following four things happen. One, we need to see that the weakness in the currency is translated into high exports as we have not yet seen that. The last month’s data was good but it is not very broad. It is just a few components that are strong, rest are poor. Second, we need to see that the policy to attract investment is on a long standing and a more consistent manner, which eventually best suits. Third, we need to see that there is no threat of capital control and this is relevant for the rupee under Raghuram Rajan, maybe he should clarify that. Fourth, for all emerging market, we need to see real rates going slightly higher. So interest rates needs to go higher in the long end especially. Q: The July trade deficit came down to 12 billion, if it came below 10 billion for August, would that be a massive positive for the rupee? A: It is a positive. Especially if the fall in trade deficit is accompanied by very strong exports, not just imports. The fall in imports is due to restriction on them. Now, if we get a bounce in exports then the fall in trade deficit would be more sustainable. If that were the case, that could stabilise the currency. Q: At the moment does 64/USD hold for the near-term as a floor for the rupee or a ceiling for dollar/rupee? A: It could be temporary because if you look at the rest of the market across Asia and also G10 then the dollar was also pretty weak today starting from Tuesday afternoon. Overall, it is a combination of a few things that 64/USD did not break but it will break. It will still get close to 65/USD. It will break 65/USD but will it break 70/USD and that view hasn’t changed. We need to see a lot more of those four factors before I can comfortably say that 70/USD will not break. Q: As and when the tapering starts, will there be another rout of EM currencies like the rupiah, rand, real? Do you think tapering is more or less discounted? A: We are shifting the discussion away from the Indian rupee or Indian economy to the dollar, the other leg of the pair. It is not an easy question to answer at all because the market is waiting for who will replace Ben Bernanke. That is still unclear and if it is Larry Summers then the market would price in a lot more hawkish Fed and that could trigger a concern. But if it will be Janet Yellen then it will not trigger that much of a concern as it would if the choice is Larry Summers. Q: Which currency are we most correlated to within the emerging market space? Why is there increased amount of negativity towards the INR as opposed to maybe a few other currencies such as the Turkish Lira or maybe the Rupiah? A: There isn’t specific focus on the rupee alone because if we look across the global EM then you would see how the currencies that are in the similar situation with twin deficits in the fiscal as well as CAD are under pressure. Here, we are talking about the rupiah, which has weaken significantly. We are talking about the south African rand, which moved even before the INR, the Brazilian real as well has weaken a lot more and rupee over the last five-six months. The currencies that are under the same umbrella of twin deficit are now seeing capital outflow hurting the currency as well. It is not just a rupee. The question is which one will find stability first. A few economies are moving in the right direction. Jagamanthati Kutumbham Nadhi |