Rupee may fall further; need more reforms: HSBC

The rupee is likely to weaken further and far more efforts are expected from Indian policymakers to stabilise the free-fall seen in the currency, says Dominic Bunning, associate - Fx Strategy, HSBC.

Also read: Worst over for market, rupee to recover now: Mark Mobius

Speaking to CNBC-TV18, Bunnings says the dollar will continue to gain against the emerging market (EMs) currencies.

"The market is increasingly looking for the Fed to stop tapering its QE programme and that is likely to continue to support the dollar," explains Bunning.

Below is the edited transcript of Bunning's interview to CNBC-TV18.

Q: Would the rupee worry you, are you expecting that 68/USD could yet be scaled?

A: When you say worry, it certainly has different degrees and different scales which you can put that kind of sentiment across. We are overly concerned about the potential decline in the rupee. But I do think we need to see more urban adjustment in terms of the currency. So, from here, the currency probably still needs to see a little bit of weakness but moreover we still need to see more efforts from policymakers to try and contend some of that currency weakness we have seen already.

Q: What could the next level be on the dollar index because a lot of the trajectory of the dollar index matters to emerging market currencies like us, it is still sticky above 82, do you see it move to elevated levels?

A: We have had a relatively bullish view on the dollar in terms of its moves versus broader markets. But I think when one sees the dollar index that is itself at around 82 area, that has been weakening from July-August. It was largely based on what is happening with the G10 currencies which would make up most of the dollar index basket.

If one looks at what has happened in the dollar versus most emerging markets over the last couple of months clearly the dollar has been on a strengthening trend and I think that is clearly down to what the market is expecting in terms of Fed tapering. The market is increasingly looking for the Fed to stop taper its QE programme and that is likely to continue to support the dollar.

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