‘If Brexit happens Indian rupee will see knee-jerk reaction’

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Updated: June 24, 2016 10:57:02 AM

Indian rupee could see a knee-jerk reaction against the US dollar if Brexit happens. However, it will not have a lasting effect, Samir Lodha, MD, Quantart Market solutions tells Feonline in an interview.

Indian rupee - Brexit worriesIndian rupee could will move towards the range of 67.90 to 68.50 to a dollar in case of Brexit.(Reuters)

 Samir Lodha, MD, Quantart Market solutionsVoting is underway in a referendum on whether Britain will remain in European Union (EU) or not. Most opinion polls indicate that it is neck-and-neck between “Leave” and “Remain” camp. Indian rupee could see a knee-jerk reaction against the US dollar if Brexit happens. However, it will not have a lasting effect, Samir Lodha, MD, Quantart Market solutions tells Feonline in an interview. He further added that the rupee will move towards the range of 67.90 to 68.50 to a dollar in case of Brexit. The Indian rupee appreciated 15 paise to 67.33 against the US dollar in early trade on Thursday. Lodha also throws some light on the factors that will drive Indian rupee apart from Brexit. Excerpts from the interview.

Q. How do you see impact of Brexit or Bremain on Indian rupee?
A. After EU referendum, I expect only a knee-jerk reaction on USD/INR. However I do not expect any lasting effect. If Bremain happens, which is likely, then rupee will move to around 66.75-67.10 range riding along with risk-on sentiment in global markets. If Brexit happens, rupee will move to the territory of 67.90-68.50 in an immediate impact.

Q. Where do you see Indian rupee against dollar if Brexit happens?
A. As mentioned above, If Brexit happens I expect rupee to move towards the range of 67.90 to 68.50 as knee-jerk reaction. However, soon other factors will take over and markets will stabilise. So in a way if Brexit happens and rupee moves to 68.50 that will be an opportunity for exporters to hedge.

Q. Will Indian rupee benefit by Brexit?
A. No, Indian rupee has no reason to benefit from Brexit. In fact a Brexit will signify further breaking of trust amongst global economies and increased trade war among countries, which is generally not a great sign for global markets.

Q. What is your outlook for India currency this year?
A. We do not expect rupee to appreciate much from current level and every dip should be an opportunity for importers to hedge. If US Federal Reserve hikes rate, there could be turmoil which will possibly take rupee towards 69-70 levels. However, if Federal Reserve do not hike rates, that will mean weakening growth and labour market prospects in USA. Such slowdown will bring global growth concerns to forefront and cause trouble in financial markets. Overall, global financial markets are quiet leveraged and monetary policy is losing steam in developed countries. Hence a turmoil is inevitable and INR is likely to touch new low in 2016 second half. However India’s macro fundamentals are strong with a) high GDP growth b) lowered fiscal deficit c) current account surplus (lowered deficit at least) d) High Fx reserve of $363 bn e) political stability and f) moderated inflation. Overall INR is likely to move towards 69 – 70 levels during second half of 2016. However a currency crisis which takes rupee to 73-74 level can be ruled out at this stage.

Q. Other Than Brexit, what are the other factors that are driving the Indian currency?
A. As mentioned above, a) Federal Reserve monetary policy b) India’s FCNR maturity in November are two key factors driving markets as of now. However Chinese growth concern, global growth concern, commodity linked turmoil are issues which can return to the forefront at any time.

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