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The kind of carnage Indian rupee saw in recent days may not be due to current account deficit (CAD) but it could be out of fear, says a report from Credit Suisse.
In its India market strategy report, the global financial firm said, "In our view INR's continuing collapse is no longer due to the CAD but due to fear. This fear, if not addressed in time, can be dangerous but also cannot be addressed with logic."
It added that while most think of institutional flows whenever "market psychology" is discussed, these were less than one-third of capital flows in FY13.
According to the report, fear of continuing INR fall has already stretched premiums making this credit much less attractive. "Policy makers must address confidence in the currency even if they think fundamentals do not warrant it," it added.
