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Dec 03, 2012, 05.46 PM IST | Source: CNBC-TV18

CAD to remain at 3-3.5% for two years: Deutsche Bank

Taimur Baig of Deutsche Bank expects the current account deficit (CAD) to remain at 3-3.5 percent for two years. Recently, the government pegged that the current account deficit during this fiscal to be at 3.5 per cent of the GDP, which was much higher than expected levels.

Taimur Baig

India Economist, Deutsche Bank

More about the Expert...

Taimur Baig of Deutsche Bank expects the current account deficit (CAD) to remain at 3-3.5 percent for two years . Recently, the government pegged that the current account deficit during this fiscal to be at 3.5 per cent of the GDP, which was much higher than expected levels.

Like many others, Baig doesn't expect the central bank to cut interest rates in its December policy. "RBI has been giving signals that it wants to cut interest rates in the first quarter of the next calendar year," he elaborated.

Below is the edited transcript of his interview to CNBC-TV18

Q: What is the sense you are getting, will we have more quarters of sub 5.5 percent growth? What's the trajectory for the next two-three quarters?

A: In October-December we will have another sub six percent growth. I am not sure about sub 5.5 percent growth, but the conditions are in place for a mild recovery from January onwards.

Whether it is the external demand pull or expectations of monetary easing in early next year, these coupled mild move towards reform initiatives, one can expect growth to hit towards 6 percent if not a little higher by the first quarter of the new calendar year. But, the October-December quarter is going to be still firmly in the sub 6 percent area.

Q: What do you think will be Reserve Bank of India’s (RBIs) reading of the Q2 FY13 GDP numbers?  What do you expect them to do in the December and the January policy?

A: Given the statement that came out in end October, the RBI is very keen to come up with supportive policy measures. If anything they can do beyond cutting interest rate, they have already done, like lots of cuts in CRR and aggressive OMOs. So, from that point of view there is no doubt that the RBI is waiting for a couple of more data points so that  can go ahead and start cutting rates.

It may not be December given that growth exactly did not collapse in the July-September quarter. Anything that is coming on the inflation side gives an additional room for being complacent. The central bank has been giving signals that it wants to cut interest rates in the first quarter of the next calendar year.

Also read: No rate cut in Dec; maintain 5.5% FY13 GDP outlook: CLSA

Q: How are you reading the core sector number for October? Are you getting a sense that we could see some kind of pick up in activity on these lines in the months to come?

A: We have to take several months data together, given how volatile this core data and the overall industrial production has been in the last couple of years. Even if you take on three month moving average basis, correlate this core data with what's coming out of the PMI side on manufacturing, the ground is set for a pretty decent single digit growth number for October industrial production, perhaps somewhere in the 5-6 percent range. From that point of view, are seeing some upward momentum in the economy. There really is no major shock in the pipeline to think that it could be unraveled anytime soon.

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