Expect rupee weakness to remain till December end: Ashok Gautam, Axis Bank

In an interview with ET Now, Ashok Gautam, Senior Vice President & Head Global Markets-Treasury, Axis Bank, shares his outlook for the rupee. Excerpts:

ET Now: After seeing the kind of trajectory in rupee, what are the levels you would be watching out now for the currency?

Ashok Gautam: In this move, 55.20 has become a very critical level for us and if this level is maintained, then probably the rupee could weaken towards the levels of 55.80 and 56.20. But we also understand that in the last few days, there has been consistent oil-related and the bullion-related buying in the market and I hope for some kind of inflows actually start materialising in the market now so that this 55.20 is capped.

ET Now: But still looking at December end, none of the fundamentals seem to be supporting the rupee. So would you go with some estimates that are now beginning to emerge of levels of 55.5 on the rupee by December end?

Ashok Gautam: The rupee weakness will remain till the December end, but we have to see two more things. First, in the winter session of Parliament, are we really going to have some follow-through action where government is able to sail through various legislative measures which will be attracting FDI actually and then whether that will actually result in the dollar flow coming in and the rupee gaining from there? I will put a 50-50 bet on that because that remains a big if, but the government seems to be quite determined to push it through.

Another factor is the dollar strength which we have been witnessing in the market for quite some time. The dollar index is at a critical level and is poised to go high. Combined with that see what is going to happen in the euro market where again the situation is not very good. So these are the factors on the international front that will also put pressure on the rupee.

ET Now: But on this whole fiscal cliff issue, if it does indeed happen, how do you expect the reaction on the rupee to be? Do you believe that a significantly stronger dollar will impact the rupee or do you believe that if energy prices come off, that can somewhere be supported by the rupee and you would not see the rupee take as much a knock as we might expect it to?

Ashok Gautam: I agree with you on the first point. With Obama coming back, there are going to be some trade off with the Republicans and probably they will find some way to avoid the fiscal cliff. On the oil front, we must understand the shale gas find which the US has announced. That will stop putting much pressure on the oil side, but certainly China continues to be a big consumer and then India. So whether the oil prices will go beyond this, I myself doubt, that will certainly help us going forward.