rupee vs dollar: Medium-term, even if the rupee goes to 84, it won’t sustain there; 10-year bond yield heading to 6.75%: Jayesh Mehta

The rupee is at record low levels, crossing 83.70 against the dollar. A lot of factors are at play right from the outflows to the demand coming in from OMCs to the yen and yuan movement, etc. Given all of this and the Budget implications, do you see it headed to 84 soon?
Jayesh Mehta: We are getting the flows. Right now it is a question of how much flow RBI needs to absorb, that is the challenge and that is where we see that. But overall, it is a risk-off situation that is going on and that is where we saw some appreciation in Asian markets, particularly Japan.

But there was an unwinding of a lot of carry trades. For us, we do not have that kind of situation. And yes, if you look at the overall risk-off situation, it is only till we get back into risk-on we can see something differently. But as of right now, it is more a case of dollar strengthening. What we saw in Japan was more of an unwinding of carry trades. So, from that perspective, we will have to wait and watch what happens in the US.

The dollar is strengthening even though the United States President Joe Biden is a proponent of a weaker dollar. I do not know what pans out later half of the year. But do you see us headed past the 84 level? What about the bond yields and the Budget? What is the sustainable level you for the rupee next as well as the 10-year bond yield?
Jayesh Mehta: The bond yield looks like heading to 6.75%. That is more of a demand-supply maths and of course, let us not forget that every month we have the index inclusion flows also, so that is on a downward trajectory.

As far as the currency is concerned, if you look at it, there was a strong dollar weakening situation 10 days back and there was a risk-on. In that situation, we definitely would appreciate and we see much larger flows and most of the currencies.

But when we have a risk-off situation, that is when everybody wants the US dollar assets and that is where we will have to wait and watch. So, it is very difficult to say. 84 is just 20 or 25 paisa away. Can it move? Yes, sharp moves are happening globally. But medium term, I think we have a strong story. The Budget does not change anything. We have a strong story. Our currency should be supported. Medium-term, even if the rupee goes to 84, I do not see it sustaining there.