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In an interview with ET Now, P Mukherjee, President Treasury and International Banking, Axis Bank, shares his outlook on the rupee. Excerpts:
ET Now: The rupee we have seen it break past 51 given the environment that we are in, are we looking at the likelihood of it retesting levels, it is like low levels that we saw in March 2009?
P Mukherjee: Yes, presently the rupee clearly is under some degree of stress and I really would not be able to tell you exactly where we are likely to end all this. But certainly the rupee is going to be under some stress and new levels could definitely be tested.
ET Now: But what are you advising your clients as far as the rupee goes, more exporters and importers given your view on where the rupee could likely be headed?
P Mukherjee: In the normal course, of course we do tell our importers to keep themselves hedged to a large extent and certainly those who have hedged themselves in the past are now certainly smiling. And my sense is even now particularly those who have relatively shorter term exposures need to be hedged considerably.
ET Now: With respect to the kind of fundamental news that has been coming for the rupee, there has been a combination of unfavourable global as well as local factors but what would you say are the key points which is dragging the rupee to level such as this?
P Mukherjee: I imagine number of factors are playing at the moment. Some of these are causes, some of these are affects of course. But the fact is they are all combining to presently hammer the rupee and we are talking of the state of the markets, international conditions, frankly hardly any good news coming from the global markets. So whenever there is stress, the rupee does tend to loosen these conditions. We are not anticipating any major inflows. So, that keeps rupee under stress. The stock markets have been bad and obviously people anticipate outflows from the markets and that immediately results in further demand for dollars in the markets. This has also been combined with some commercial outflows of course and finally of course those who have not hedged themselves in the past, they certainly are under some degree of stress now and looking to hedge themselves. So, a lot of people are now rushing to hedge themselves.
ET Now: But if you had to tell us which the bigger concern would be, would you say it is currently the global conditions that we are seeing or would you say it is the widening trade deficit that we are seeing in India that is the bigger concern as far as the rupee goes?
P Mukherjee: Till a few days back I would have said that the global factors were the most important factors deciding on where the rupee was, but now internal factors are certainly playing a part. The burgeoning deficit is a cause for major concern.
ET Now: You spoke about all of these factors, the sovereign debt concerns, also concerns coming in from back home, do you think that there is likely to be any intervention for the currency markets right now?
P Mukherjee: I never speculate on what the RBI is doing. Frankly, I would never be able to certify as to what they have done. There are always reports about the Reserve Bank intervening. My sense is, there would have been bit of intervention. At some point we might see more aggressive action.
ET Now: So say we do see more aggressive action then from the RBI, do you believe that will bring enough comfort for the rupee?
P Mukherjee: It could tamper sentiment a bit.
ET Now: If we look back to 2008 when again we had a similar global crisis brewing, we did have the Reserve Bank of India open a special window for oil companies to buy dollars off market. Do you see that as a step that could likely take away some amount of pressure from the currency markets?
P Mukherjee: Certainly some degree of comfort could come in, yes.
ET Now: Just shifting focus away from the rupee and looking at the bond markets, the very fact that the RBI day before yesterday announced that they would begin to conduct OMO purchases beginning, the 24th of November, how much of a comfort are the bond markets taking that signal as?
P Mukherjee: They have taken comfort. That was seen in the markets. What we now need to see is what does happen, when it does finally happen. And I imagine that the market has taken comfort from it quite a bit actually.
ET Now: We do seem to be headed for one of the biggest trade deficit that we have seen, what affect do you believe that will have on the rupee as well as on the current yields on the bond market?
P Mukherjee: These are linked, of course the rupee certainly for the present continues to be under stress and the strain will be there. I imagine the bond markets would always be jittery in the face of such deficits. At the same time, I would like to make a point here that the India story is somewhat different and if you were to go by the tech spook, such deficits would obviously cause a lot of concern. In my opinion, you need to look at India's deficits somewhat differently and I personally would say that India has withstood deficit issues in the past and I would not like to damn the economy entirely based on our deficits.
ET Now: And the winter session also is likely to give a hint with respect to the extra borrowings from the government. Say that they do say that no extra borrowing is required, do you think that that will be a point of inflexion for the bond markets?
P Mukherjee: Obviously it will do our markets no harm and to some extent it would again improve sentiment in the markets.
