Naveen Mathur, Director – Commodities and Currencies, Anand Rathi Shares & Stock Brokers, says if the rupee depreciates to around 84.50 or so, we might see RBI intervening. The rupee depreciation, although good for exports, is not good for the imports to the country and therefore the fiscal deficit and other situations, the other macroeconomic fundamentals can worsen. That might push RBI to intervene and sustain the rupee not beyond 84, 84.50 levels, although we are currently at around 84.36 or so.
Where do you see the currency headed? Of course, it is because of the kind of dollar strength that one has been witnessing, but do you think we will see some sort of RBI intervention anytime soon to try and arrest the fall?
Naveen Mathur: The dollar index predominantly played a critical role in the depreciation of rupee against the dollar. We did see the dollar index over the last two days post the election results in the US moved to a level of around 105.3 or so. I think that is one of the factors because the Republicans and particularly the president-elect has shown interest or keenness while campaigning. And whatever promises they have made was largely with respect to the tax cuts.
With the anticipated tax cuts in the US, the disposable income would improve and therefore it might lead to inflationary tendency. And with the building up of inflationary tendencies, we feel that the Federal Reserve or the central bank would not continue to be so dovish which we have seen earlier over the last two or three months. It is kind of a neutral to a little dovish view, but at the same time, the interest rate cuts would not be to the kind of levels which we have been anticipating over the last few months.
So, with that, the dollar has gained strength, plus the policy expectations are positive for the US economy and therefore the strength in the US economy is also building up the surge on the upside for the dollar index. We continue to see the dollar index on the upside and rupee to depreciate. The rupee did touch 84.42, the depreciative side against the dollar and currently at is around 84.36, a 0.40% depreciation in the last two days. I think 84.50 would be the key level to watch out for in terms of rupee and the dollar levels.
Any signs of intervention by the RBI and what about the bond markets?
Naveen Mathur: The yields in the US have improved. The RBI would wait and watch, and might not immediately take any step. But yes, if the rupee depreciates to a level of around 84.50 or so, we might see an intervention coming in. The rupee depreciation, although good for exports, is not good for the imports to the country and therefore the fiscal deficit and other situations, the other macroeconomic fundamentals can worsen, which might therefore give a push to RBI for intervention and sustain the rupee not beyond 84, 84.50 levels, although we are currently at around 84.36 or so.
