The embattled rupee recouped from record lows and opened higher against the US dollar on Wednesday while bond yields fell.

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Jahangir Aziz, head of EM economies research at JP Morgan, spoke to CNBC-TV18 about the local currency and rupee trajectory in the near term.

“We have two reasons as to why the rupee is under pressure like any other current account deficit (CAD), the CAD is rising and global financial conditions have tightened through April till July in August was very different then in August, emerging market risk was being reassessed, the question is why did CAD rise and rather than going to export, import, exchange rates, oil prices, CAD is just the part of investment that domestic savings cannot find," Aziz said on the sidelines of JP Morgan India Investor Summit.

"The good thing is that we have seen these two quarters of higher investment picking up but there isn’t sufficient savings domestically to fund that. So we are pushing them to go abroad to fund it and that is where the problem is. The question is are the steps that are being taken addressing the problem of insufficient savings or not and my point is that I don’t think that is the way people or that is the way policymakers are looking at it and that is where you are getting tangled up at all of these things about export/import,” he said.

Speaking about the stocks valuations, Aziz said, "If you are going to think in terms of valuation and valuation is the only way in which India is going to adjust and India is not going to bring in other things that is policies to help in the adjustments, we all know what happens – if we have only one adjustment, that variable adjustment is outsized. If you are only going to say that fx is the only way in which India is going to adjust and there is not going to be any support to fx in the form of tighter monetary, tighter fiscal policy then the fx adjustment has to be higher or larger could be in order to get it to the valuation where people think India is attractive again. I have no sense of that."

Aziz expects the Reserve Bank of India to raise interest rates next month. “We have a hike in October, we have a hike in December and we have spoken about this that if you have made up your mind – and I don’t know whether the Reserve Bank of India (RBI) has made up its mind or not but suppose they have decided that they are going to hike on October 5 or October 6, then it is much better to do that rate hike now than delay it till October. The effectiveness of that rate hike goes away, diminishes the longer that is delayed,” said Aziz.

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First Published:Sept 19, 2018 11:07 AM IST