Expect rupee to depreciate over a longer term: Mythili Bhusnurmath

In a chat with ET Now, Mythili Bhusnurmath, Consulting Editor, ET Now, shares her outlook for the rupee. Excerpts:

ET Now: What is the sense you are getting on the currency front?

Mythili Bhusnurmath: The rupee is overvalued. The underlying tendency trend would be and should be towards a gradual weakening of the rupee, given inflation differentials. Since there are so much FII inflows coming in, the valuation that we are getting today for the rupee versus the exchange is more driven by supply and demand.

It does not reflect the true underlying strength of the Indian economy. So the rupee is bound to depreciate over a longer term, but I guess the Reserve Bank of India will periodically intervene to prevent any undue volatility. But you will definitely see volatility both in the short term as well as in the medium term. Medium term is driven more by what the Fed does and short term is driven by what FII flows mean really for the value of the rupee and how much the RBI really intervenes in the market to mop up reserves.