Making Sense

Target of 60.00 was met. 60.00 is a very crucial level and a sustained and decisive break below 60.00 is needed for rupee to target 57.00. After making a low of 59.59, USDINR was constantly bid up today. We touched 9% on the 10Y benchmark yield and equity benchmarks closed marginally down. 9% yield on 10Y G-Sec does not bode well for the overall economy. With downside risks to CPI inflation, the return on deposits by banks will have to be increased to incentive depositors to put the savings in banks. The growth in aggregate deposits at 11.5 per cent in September 2013 lagged behind the credit growth of 15.10%. With liquidity being tight, deposit growth will have to play catch up for smoother credit off take. Plus if the cost of deposit rises then so does the cost of credit. Higher rates on credit coupled with sticky inflation, will only delay the revival in investment cycle. Announcement of OMOs will support the yields. However, any action is yet to come from RBI. In a scen...

While Rupee has been consolidating in the 60.80 – 61.40 range I have been questioning if appreciation beyond 60.50 levels is warranted and should one go long here. Had a couple of points in mind: 1.   When rupee had surged past 64 – 65 levels, Indian Exports had become cheaper compared to Chinese exports due to sharp depreciation of the INR. INR has since appreciated 11.25% and CNY has depreciated 3% in 2 months. This basically goes to show that Indian Exports will lose the competitiveness and the natural adjustment process associated with depreciation will be halted if rupee continues to appreciate. Is RBI comfortable with rupee below 60.00 levels when other emerging market currencies are depreciating? 2.     Looking at the Fx Reserves - Our FX Reserves are at $ 295.448 bn as on 07 th March 2014 from lows of $ 274.806 bn in Sep 13. The maximum Fx reserves held from data analysed since 2001 is $ 320.785 bn held in Sep 11. Can we say that RBI then can atlea...