Home Market Rupee may go back to 69 in next 6-8 months: Jayesh Mehta,...

Rupee may go back to 69 in next 6-8 months: Jayesh Mehta, BofA-ML


The rupee depreciation has not much to do with Lira and more to do with what is happening in rest of Asia, particularly China and Indonesia, Jayesh Mehta, V-P, Delivery Manager, BofA-ML, tells ET Now.

Edited excerpts:
We saw a record low opening for the rupee today. Where do you stand in this entire issue? There does not seem to be any kind of unanimity on the Street. While some say that the real value of the rupee should be close to 67, there are many that believe it is actually around 80. Do you see more pain ahead?

Right now, it is closer to 68-69. Of course, there was a global event and bad trade deficit numbers. So, it is just mood. On a standalone basis, it is at all-time low. It is just crossing that magic number 70. But when you look at it, from 69, we have touched 70.20. It is like one buck 20 cents. It is not that big a movement.

Of course, this year, there was no FPI. It has been negative till now. We have been managing trade deficits with positive FPI flows. This is the first time we have a negative FPI flow. That is the reason one needs to look at it a little bit. Either the FPI flows start coming in the second half or your trade deficit comes down in next few months.

The real value of the rupee is closer to 68-69 and you are seeing a cascading impact of what is happening with Turkish Lira. Rupee above 70 is a short-lived phenomenon and therefore we do not need to get alarmed. But it is going to have an impact on twin deficits. Trade data has ballooned to a five-year high. Today, India Ratings has downgraded Indias potential GDP growth as well. How alarmed are you by all of this?

I was not too alarmed about Turkish Lira. It has more to do with what is happening in the rest of Asia, particularly China and Indonesia. Their currency depreciation and the consequence of the raising rates is a little bit worrying both on the rupee as well as the Indian INR interest rate front.

It is basically whole Asia that creates a little bit concern and we do not know where it ends up but as of today, it is 69.

If rupee stays in the 70 odd level, do you think it is a comfortable situation considering what is happening in other emerging markets? The way the outflows have panned out, is it not a very material depreciation so far?

It is not a material depreciation. Unfortunately, we touched that number. If this number was 72-73, nobody would have bothered or if it was 67-68, nobody would have bothered. But since we are touching that number, it is a coincidence that it is also all-time low.

That is what people are looking at but they will get over it. The sentiment is only for a few days. From that perspective, we should be fine unless China-US confrontation deteriorates further. We may come back to 69 in the next six, eight months or so.

Russell Napier, a well-known global strategist, has said that the Turkey crisis could be one of the largest debt problems that emerging markets could face. If that happens, flows in the near term be affected by a lot of issues. Is it just about a scare and getting away from the risky assets?

Whatever damage Turkey had to do has been done. People are saying it is different, it is not a global crisis, it is not contagious and therefore they are getting off it. Turkey itself has come off its lows. From that perspective, if it was Turkey alone, then we should have appreciated today but that is not happening. It was triggered by Turkey but now we are alooking at our neighbours in Asia.

We have already seen official commentary coming out of the government. A lot of economists have talked about how the Reserve Bank over the last few weeks has spent nearly $23 billion in propping up the rupee. How sustainable is this? We are already on United States watch list when it comes to currency manipulation.

RBIs action has never been at one level. Following the Turkish Lira crisis, they have acted like a speed breaker but they have not been defending any level. If you defend any level, then whatsoever reserves you have is not enough. I do not think they are defending any level and at every level they are just coming and selling some dollars which is anyway required.

People may say this is like trying to stabilise or propping up the rupee, but it is not really doing so.

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