India's GDP growth will be at 8%: HSBC

Excerpts from CNBC-TV18's exclusive interview with Peter Morgan:

Q: The US treasuries have pulled back to almost 5.2%. Do you see that springing a few surprises on the way up again or do you think it will not make it to the high of the last fortnight?

A: It will be broadly in the range of 5-5.2%, but the risk is still a bit more on the upside. We do continue to get upward surprises on growth.

The thing to focus on will be the retail sales figures coming out on Friday. Those were actually expected to be a bit on the weak side, so if that is confirmed we will continue to see the bond yield in the current range.

Q: What is your call on the Indian situation? Do you belong to the camp, which believes that the worst is being seen in inflation and interest rates will not go up from here?

A: That is certainly true for the wholesale price index, or WPI, but we still have some concerns about the consumer price index, or CPI. That may stay elevated for a prolonged period.

Growth has still been quite strong and capacity utilization rates are still quite high. So, we still see some risk of overheating. 

Given the signs of cooling off in WPI inflation and some of the loan numbers slowing down, it looks like the policy is probably on hold for the time being.

Q: What would you put out as a GDP growth target for this market and an inflation target for the rest of this year?

A: We are still seeing a growth of around 8% and WPI will be on the order of 4-5%.

Q: There seems to be a consensus that most of the interest rate fears, even globally, are out of the system. Would you agree with that and would you expect to see any sort of moves from the Fed in the next six to eight months?

A: We expect the Fed to stay on hold. They are still seeing more risk on the inflation side but are still cognizant of the downside risk to growth, given the continuing weakness in the housing sector. On the whole, they are quite happy to stay on hold for the time being.

Q: How long will the Indian Central bankers stay on hold because some people have started talking about the prospect of a rate cut in India? How soon will it be before such a rate cut actually comes about?

A: We do not really have a rate cut on our forecast until the end of next year. This will be a possibility but given the strength of growth, the capacity utilization numbers and the CPI, it is a bit early to be predicting an actual rate cut.

Q: In the next three quarters, would you expect to see a status quo situation in interest rates?

A: Basically, status quo.

Q: What would you expect to see by way of the currency's move because it has been an extremely strong half-year for the Indian rupee?

A: There will probably continue to be some upward movement though not at the same pace that we had previously. The fundamentals are basically favourable for the rupee.

Q: There seems to be some concerns over the way the yield has been hardening in the US markets. Do you think there might actually come a point where there will be a shift from equity to bond because of the way yields have been moving?

A: I do not think so. As long as you are in a situation where the Fed policy is expected to stay on hold for the foreseeable future, it is difficult to make a significantly bullish argument for bonds.

Bonds had been overpriced previously precisely because of expectations of Fed rate cuts. Without any sort of incentive like that, it will be difficult to be too enthusiastic about bond yields. The level of bond yields, by historical experience, is still not particularly high.

Q: What is your expectation on global inflation and the way some of the metal prices have moved? Crude is at USD 72. Do you think it is too early to draw a line on global inflation and say things have turned very benign?

A: The situation is more benign than it was previously. But given the strength of global growth and the strength of commodity prices, the risks are still probably more on the upside.

Even if the US is not going to raise rates, the rate increases in other areas like the UK, like the European Central Bank, or ECB, and almost certainly China, will be raising rates further. On the whole, there are still concerns about inflation pressures.