Oil may add USD 30 billion to import bill: Deutsche Bank

Ananth Narayan, Head of Global Rates at Deutsche Bank said that there has been a fundamental change as far as the numbers are concerned in oil.

Further he said that their own estimates predict that if oil remains where it is currently we could be adding about USD 30 billion to the import bill and that is a sizeable number.

Excerpts from CNBC-TV18's exclusive interview with Ananth Narayan, Head of Global Rates at Deutsche Bank

Q: What would you really advise a rupee person at this juncture? In the near-term is current level kind of peaking off for the dollar?

A: I think so. The one fundamental change, which has happened over the past few months, is the oil, which has gone up by 50% since last six months. There has been a fundamental change as far as the numbers are concerned in fact our own estimates are that if oil remains where it is currently we could be adding about USD 30 billion to the import bill and that is a sizeable number.

I guess the other concern is along with this can we actually see a contraction in the capital flows, is it possible that if there is a slowdown will there actually be a contraction in the inflows into the Indian economy.

While these are the causes of concern I think on balance these are already factored in. There is a huge amount of headroom available on the apex front for the Reserve Bank of India (RBI) and for India as a whole. We must remember that we have results of USD 312 billion the last year alone we saw USD 100 billion accretion to results and plus look at the headroom available for the RBI to actually open taps if required.

Whether it is allowing External Commercial Borrowings (ECBs) to come in, allowing a better interest rate for NRI deposits, or more money into debt funds from overseas.  

Q: The point is taken that in the medium-term it doesn’t make sense whereas it might make sense to see rupee peaking off. But for a trader how does it look like would it make sense to wait out till you see the first hand of the RBI and meanwhile you don’t swell them at all?

A: I am not sure if the RBI is there in the market or not. You are aware that we are not privy to that kind of information. Currently I think the bad news is factored in whether it is the oil prices or the question mark on capital flows. So to that extent at current levels it is probably my personal view- probably a good time to sort of for exporters to start hedging a part of their dollar receivables etc. Remember that the big fundamentals, which have changed over the last few weeks, especially oil, that needs to be watched.    

Q: How much more legs does this rally have we already closed to a peak?

A: I think on the monetary front things look okay liquidity is still okay we might see some tightness going into the June advanced tax payments etc. But there is a problem a possible potential problem on the fiscal front again leading back to where oil is currently. I am a little less sanguine on the fiscal side of the story than on the balance of payment side of the story.

The fact is that we could have a very large oil bond issuance programme coming up for this year that could top Rs 80,000-85,000 crore plus there are a few others off balance sheets and unbudgeted items in the fiscal deficit. You have the Sixth Pay Commission, then the loan-waiver and you have the food and fertilizer bond issuance. All that put together could actually amount to about 2-2.5% of GDP and is an enormous number.

Again the silver lining or the buffer is- is it possible that like in the last few years you actually have very robust tax collection and therefore reduce the pressure on the fiscals. But that again is predicated on a slowdown not happening. So both on the apex front and the bond front the averring is predicated on most slowdown happening things going on as before and therefore providing the cushion that the economy needs.