ET NowIn a chat with ET Now, K Harihar, Head-Global Markets, FirstRand Bank Ltd, shares his outlook for the rupee. Excerpts:
ET Now: With the dollar at 96, do you think the rupee is more vulnerable than before?
K Harihar: Our current account deficit is going to be below 1.5. If the commodity prices remain soft, we will continue to print 1.5 for the next year.
But that is broad macroeconomics. When it comes down to finer specifics, the dollar index has travelled all the way from 80 to 96. The rupee has not really shown a proportionate move on the downside. It has shown some moves directionally, but these moves have definitely not been proportional.
The current dollar index reflects the strength of the US economy. It also probably points to an accelerated pullback of the liquidity released earlier into the world by the Fed.
Going ahead, there are perhaps going to be some cause for worry, because it is not just the dollar index going up. The US 10-year treasury bills are now trading at 2.13. Looking at the way Eurozone, Japan and China are behaving, the dollar index has quite a lot of scope for further up moves. To that extent, the rupee could expect some pain.
Some of our own actions are to blame too. The indices are not permitting FIIs to invest in paper with a residual maturity of three years and below. That has created an immediate impact in our markets.
Coming to FII inflows, about Rs 42,000 crore — debt and equity combined — came in on a net basis in January. The month of February saw only one-third of that. The number is still looking very soft for March. That alone will contribute to the rupee's weakness in a small way, adding to the pressure already being exerted by the rising dollar index.
We can't run away from the fact that we are basically an importing country. If in the past we have suffered during commodity spikes, we are now going to be in for a dividend in terms of oil. So even if the rupee goes from 60 to 70, we should get a total annualised dividend or savings of $50 billion.
So,the rupee could weaken. It is not a bad thing if it goes down to 63-63.5 odd levels. But the forward premiums are roughly in the region of 7% — Rs 4.50 to Rs 5 to a dollar for a year. That would entice exporters to lock in their forward receivables. So we could see a bit of rupee weakening, but not too much because exporters would come to sell their forward receivables.
ET Now: With the dollar at 96, do you think the rupee is more vulnerable than before?
K Harihar: Our current account deficit is going to be below 1.5. If the commodity prices remain soft, we will continue to print 1.5 for the next year.
But that is broad macroeconomics. When it comes down to finer specifics, the dollar index has travelled all the way from 80 to 96. The rupee has not really shown a proportionate move on the downside. It has shown some moves directionally, but these moves have definitely not been proportional.
The current dollar index reflects the strength of the US economy. It also probably points to an accelerated pullback of the liquidity released earlier into the world by the Fed.
Going ahead, there are perhaps going to be some cause for worry, because it is not just the dollar index going up. The US 10-year treasury bills are now trading at 2.13. Looking at the way Eurozone, Japan and China are behaving, the dollar index has quite a lot of scope for further up moves. To that extent, the rupee could expect some pain.
Some of our own actions are to blame too. The indices are not permitting FIIs to invest in paper with a residual maturity of three years and below. That has created an immediate impact in our markets.
Coming to FII inflows, about Rs 42,000 crore — debt and equity combined — came in on a net basis in January. The month of February saw only one-third of that. The number is still looking very soft for March. That alone will contribute to the rupee's weakness in a small way, adding to the pressure already being exerted by the rising dollar index.
We can't run away from the fact that we are basically an importing country. If in the past we have suffered during commodity spikes, we are now going to be in for a dividend in terms of oil. So even if the rupee goes from 60 to 70, we should get a total annualised dividend or savings of $50 billion.
So,the rupee could weaken. It is not a bad thing if it goes down to 63-63.5 odd levels. But the forward premiums are roughly in the region of 7% — Rs 4.50 to Rs 5 to a dollar for a year. That would entice exporters to lock in their forward receivables. So we could see a bit of rupee weakening, but not too much because exporters would come to sell their forward receivables.
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