Momentum of rupee weakness is a cause of worry: Ananth Narayan, StanChart Bank

In an interview with ET Now, Ananth Narayan, Co-Head of Wholesale Banking, South Asia, Standard Chartered Bank, shares his outlook for treasury. Excerpts:

ET Now: What do you think is going to be the level to watch out for the rupee and are we going to sustain at these levels?

Ananth Narayan: Well, the momentum of the weakness has been pretty strong over the last few sessions and that is worrisome. Frankly, a lot of players, including myself, expected 56 to hold. The fact that it has broken through is a sign of worry. The rupee has depreciated even faster than the other currencies and that is a worrisome sign.

Medium term 57 should hold. The prospects for India at a macro level still seem okay. Export should go up going forward and commodity prices are still behaving themselves even though they are volatile within the range. FDI flows anecdotally look promising over the next couple of months and FII flows particularly in the debt side seem robust as well. So all in all it seems as if there is no reason for actual panic as yet, but the momentum is pretty strong. So we will see volatility over the next few sessions.

ET Now: What does the RBI do because there have been murmurings about the RBI intervening one in case of extreme volatility. Do you think that will happen if indeed we touch closer to the 57 levels assuming we go there?

Ananth Narayan: I am a biased player in that respect and I have a biased view there. RBI has consistently said that they are not worried about specific levels, that they are worried about actual volatility and the size of the volatility rather than specific levels. So 56-57 these are the levels the market watches. I do not think the RBI quite sees it that way. Having said that there is a case for the RBI to temper the move, if you look at the overall balance of payments for the country whether it was last year or for that matter for this fiscal year I do not think it is a large dollar negative. In fact we are projecting $10 billion surplus in terms of balance of payments. So there is a need for some kind of stabilisation on both sides. RBI has done that in the past when rupee was appreciating in terms of moping up dollars probably make sense to loosen up the purse strings or bet when the volatility goes to the other side as well. So, yes, I think RBI should come in at 57, but who is there to second guess what RBI will actually do? In terms of the macro part you mentioned there are not any negatives as such, there are a couple of negatives to be honest.

ET Now: What you are expecting from the GDP numbers, particularly for the agriculture growth?

Ananth Narayan: We think the fiscal year 2014 numbers ought to be a lot better than what we eventually end up for FY 2013. On all fronts to be honest, agriculture hopefully and fingers are crossed on that and there we have to sort of pray to the weather gods but even from a industry perspective given the fact that the private sector in the US seems to be doing a lot better now.