Rupee to be Asia’s biggest underperformer in near-term: Divya Devesh

Rupee to be Asia's biggest underperformer in near-term: Divya Devesh

Indian Rupee will see a sharp fall (around Rs 69-70 levels) as compared to other Asian counterparts and the RBI’s measures to soothe the depreciating rupee will be closely watched, says Divya Devesh of Standard Chartered Bank.

The volatility seen in the rupee is a knee-jerk reaction post Raghuram Rajan’s bow-out, said Divya Devesh of Standard Chartered Bank. The massive amounts of policy credibility that Rajan has built up in the last 3 years will take a hit, he added.

Uncertainty over who will take over as the next RBI governor and Brexit will also give quivers to the rupee, he maintained. “Rupee will see a sharp fall (around Rs 69-70 levels) as compared to other Asian counterparts and will continue to be the biggest underperformer in the near-term,” said Devesh.

RBI’s measures to soothe the depreciating rupee will be closely watched, he added. In an interview on CNBC-TV18, Devesh referred to the announcement over the weekend of RBI chief Raghuram Rajan’s exit is negative for the currency but global markets today, some of the concerns around Brexit seem to be easing off slightly and as a result of that we have seen little bit of weakness against the dollar and that is why dollar rupee after that initial move higher has retraced slightly.

According to Devesh, in terms of the impact of the announcement on the currency; we are basically looking at three channels. First, Dr. Rajan has built-up massive amount of policy credibility over the last two years and that is definitely going to take a hit. Second, investors generally do not like uncertainty and since we do not yet know who the next Governor is going to be or even when the announcement is going to come through – that is a negative as well for the currency. Third, in terms of timing of the announcement just a few days ahead of the Brexit vote, that also adds to the negativity for the currency in the very near term. So near term we still think that rupee is going to be one of the underperformers in Asia.

Devesh says, in either case irrespective of what the Brexit outcome is, the rupee is going to underperform. “If in case the vote is for a leave, we should see a sharp selloff in the rupee which would be more exaggerated than other currencies in the region, but even in case we see a remain vote and we see a brief risk rally after that, I think INR is again going to underperform the rest of the region as some of the uncertainty around some of the other news will still remain and as a result of that I do not think we will see much gains in the INR,” he says.

The exit of Britain from EuroIt will “be a massive risk off kind of an environment and liquidity is going to be quite terrible as well,” Devesh says. “I think we will most likely be seeing new all time high for the rupee. There might be some resistance from the central bank in terms of trying to limit the upside but if it is a secular dollar, Asia move higher, I do not think the central bank will draw line in the sand. Therefore, I do think that will probably break to new highs for dollar-rupee in case we do see Brexit.” According to him, the Rupee is going to be anywhere between 69-70/USD.

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