Rupee appreciation to depend on RBI action: Badrish Kulhalli, HDFC Life

In a chat with ET Now, Badrish Kulhalli, Fund Manager-Fixed Income, HDFC Life, shares his outlook on the rupee. Excerpts:

ET Now: Some brokerages seem to suggest that the rupee may reach 55 to the US dollar by the year-end. What is it that you make of these estimates?

Badrish Kulhalli: The movement in the rupee is fundamentally being driven by underlying flows. Currently our trade deficit is running roughly at $10 billion a month and we have large amount of capital inflows pouring in, both on the equity as well as the debt side. Therefore, obviously on a net flows basis, the rupee will appreciate.

More importantly, we need to understand RBI’s stance on the rupee. If inflation stays at its current high levels, RBI will not be comfortable seeing the rupee at 55. If the rupee has to appreciate further from here on, inflation will have to ease off or else the RBI may try to limit the amount at which the rupee can appreciate.

So fundamentally, definitely rupee can appreciate, but the extent will depend on how comfortable the RBI is to see it appreciate from the current levels.