New York: Jayesh Mehta, managing director & Country Treasurer of Bank of America says the rupee may strengthen to 59-60 per dollar ahead of elections. Foreign funds have been investing in Indian equities and bonds on hopes that a stable government post elections will lead to a turnaround in India’s economic fortunes.
Notify that People were expecting a rate hike during third/fourth quarter of 2015 before statement of US Federal Reserve Chair Janet Yellen.
However after the current statement people believe that the rate hike could be in the first half of 2015. But it will be more data dependent. That is why all stock, currency and debt markets in USA reacted and global markets too.
India is going through a different sentiment altogether. People believe that the right government would be elected and there is a huge momentum on the equity flow which is getting reflected in the currency movement. Currency is just mirroring the equity inflow. Till the momentum continues on the equity side currency will be well supported. I won’t be surprised if rupee goes to 59-60 level if the momentum continues more on equity side before election.
He said that he won’t be surprised if some people would start taking profit before elections. In terms of election results nothing can be said right now. The markets are factoring 75-80 per cent probability that the right government would come in and therefore equities would rally and the flows would continue to come in to India through FIIs and that would lead to appreciation on currency. I think both of them are going together. But, the 10-15 per cent probability that if we don’t get the right government and we get a fractured mandate then things can be really become mess.
Over the question of expectations of inflation he said that one of the major factors is rural wages on the CPI (retail inflation), and he think that is directly related/correlated with food prices. He thinks they are very soon nearing to the bottom of food inflation. The food inflation may rise up again and that would raise the core CPI too and that is little worrisome. But right now we expect that the March inflation would be little lower or flattish but then April, May would be very crucial.
Bureau Report
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