Declining growth and high inflation have been major worries for the Indian currency, points out Harding stating that the rupee has the risk of taking out 55.10 now. According to him, investors will panic if it moves between 55.50 and 56.10 and in order to prevent this, the RBI must protect the currency.
Harding further adds that if the rupee stays there between 54.80-55.10 per dollar, there is a risk of weakness beyond 55.20.
Here is the edited transcript of the interview on CNBC-TV18.
Q: What have you made of the rupee at that 55 mark versus the dollar now? What led to that and what are you seeing in today's action in the forex market?
A: Rupee bearishness was on the cards since the disappointment from RBI's monetary policy. Most expected RBI to take a rate cut stance to support growth. The domestic dynamics have turned very weak and you have a downturn in growth and upturn in inflation in the near-term. That has caused the major worry.
On the external front, dollar index in the meanwhile have rallied from 79.60 to over 81. It is the combination of both domestic and global cues which have extended rupee correction from 51.35 to above 55. During this process, rupee has taken key support levels of 54.20 and is at the risk of taking out 55.10 now. If that is taken out, I see importers' panic coming into play to drive the rupee to 55.50-56.10. It is important for RBI to protect rupee weakness beyond 55.10 in the interest of containing inflation.
Q: How high is the probability of the rupee getting back to 57.30 levels by the end of the year, something that we saw in the month of June? At what point do you think the RBI will come in order to curb the depreciation?
A: The immediate need is to get the domestic macro economic cues back on track. The government is taking enough steps and what we hear from the PM in the Economic Times' meet is that the vibes are positive, but how it is going to be translated into action and how quickly it is going to turn RBI into a growth supportive monetary stance is yet to be seen.
When there is a confirmation on the turnaround in the weak domestic cues, I think rupee should get into a reversal mode setting its weakness on the trot. The positive takeaway is that the equity market continued to stay well. It has outperformed the rupee despite these weak domestic cues. That is the silver lining at this stage.
Q: The rupee had gone to levels of about 55.10 just sometime back. From there it has appreciated just about 8 bps or so. Have you seen any kind of an RBI intervention already in today's action in the last few minutes?
A: We saw a bit of a correction from the earlier key support of 54.20-54.30 levels. So 55.10-55.20 is also expected to hold for a while. But if rupee is not taken below 54.80 and if it stays between 54.80-55.10 then there is a risk of weakness beyond 55.20.
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