If Section7 has been invoked to overrule the RBI then
perhaps it will be safe to infer, that morally the RBI governor will find it
difficult to continue. This would not be taken kindly by foreign investors and
USDINR could move towards 75. Also comments have shown that the government was
more worried about the Rupee fall than the RBI which believed the Rupee fall to
be moderate till the beginning of October. Therefore till the issue is resolved
RBI might not aggressively defend the Rupee either. This coupled with dollar
strength and Indian political uncertainty should result in higher capital
outflows from India. The risk is intermittent intervention by RBI and the issue
between the government and RBI getting resolved, which would take some time.
USDINR 1m NDF was trading 3p left yesterday and today it is
1p right. Other EMs would not matter much in the current situation and would
only affect the pace of move. CMP 74.05, Range 73.95-74.30.
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