Major Support For Rupee Seen At 64.40/$: Mirae Asset Global Investment
RBI’s ability to intervene in the forex market is limited: Mirae Asset Global Investment
The Indian rupee climbed to a fresh 17-month high, boosted by a combination of weak dollar and foreign funds pumping money into local equities. The currency is also the best performing among Asian peers this month, according to Bloomberg data.
The next big support level is seen at 64.40 against the dollar, Mahendra Jajoo, head of fixed income at Mirae Asset Global Investment told BloombergQuint in a phone conversation.
He said the rupee rally will continue as long as inflows keeps pouring in. However, he cautioned that any strong intervention by the Reserve Bank of India in the forex market could derail the rally.
Here are edited excerpts from the conversation.
What is driving this continued strength in the rupee?
There are multiple factors working in the favour of rupee right now. (i) Emerging markets are finding lot of favour, (ii) significant foreign inflows, (iii) deadline of March 31 before investment becomes taxable, (iv) sense that the Dollar Index has peaked and (v) Indian interest rates holding stable.
The Reserve Bank of India (RBI) had highlighted three risk factors in its last monetary policy: currency volatility, oil price and core inflation. Since then, all these three factors have improved. Oil prices have fallen 15 percent from highs and core inflation, which was the most contentious factor, has actually come down by 20 basis points. The interest rate differentials are also working in favour of the rupee. So, there is a lot of arbitrage money that will come in.
Do you expect the RBI to intervene?
We have been reading about the new liquidity measure that the RBI has been talking about. The clear situation is that the RBI’s ability to intervene in the forex market is limited right now -- as if they buy dollars then that much liquidity will come in the system when there is already a problem of excess liquidity that they are dealing with.
Where is the rupee headed now and what are the risks to this rally?
It is very difficult to say where this rally will stop. The belief that the Indian currency is overvalued on a real effective exchange rate (REER) basis is already known. While exports have just begun to pickup, if the current appreciation trend continues, it may just hurt the export momentum.
The rupee is now appreciating whereas the rest of the emerging market block has seen relatively lower gains. This will hurt India’s export competitiveness. But all these factors are known. And right now, inflows have overtaken all other concerns. So as long as these factors continue, the rupee will continue to appreciate.
So the risks to current rally is if any of these factors change or if there is a strong intervention from the RBI.
Any near-term target or support levels?
Our technical analysts see next big support at 64.40 against the dollar.