Rupee Bound To Touch 40 Versus Dollar: Verma

State Bank of India chairman M S Verma has stated that the prime lending rates of commercial banks will come down in the next six weeks and no one can forbid the rupee from touching 40 a dollar due to the liquidity in the system

Talking to press reporters after the launch of the SBI Fast cash management system, Verma said, The prime lending rates will have to come down within the next six weeks.

Foreign banks like Nova Scotia, Bank of America, Commerzbank and Deutsche Bank, which had raised their PLR sharply after the hike in the bank rate, have taken the lead in cutting their PLRs by 300 basis points last week. Besides, the call money rates, which had touched a high of 140 per cent after the RBI announced a two percentage points hike in the bank rate to 11 per cent on January 16, eased to a low of one per cent on Monday, reflecting the excess liquidity in the system.

 

Asked whether lower rates and the liquidity overhang would lead to a fall in the rupee to 50 a dollar, Verma replied, The rupee will not hit the 50 level, but no one can forbid it from hitting 40. Analysts expect Vermas comments to trigger off a slide in the rupee today, specially since SBI is considered a market mover in the forex market. Market sources said Vermas comments would be based on information of demand and supply of the dollar in the next few weeks. SBI deals in dollars for Indian Oil Corporation, the single largest buyer of the greenback in the country.

In order to check the rupees depreciation, the Reserve Bank of India had hiked the bank rate to 11 per cent and the cash reserve ratio to 10.5 per cent, signalling an across-the-board rise in interest rates. SBI had hiked its PLR by one per cent after the RBI announced these measures.

On the second phase of mergers in the Indian banking sector, Verma said, Merger of banks as time passes is inevitable. There has to be rationalisation and pooling of strengths. The shortest route for this to happen is through the merger of two strong entities.