RBI will perhaps take 2-3 months to ease rates and rollback measures. Taimur Baig, India Economist, Deutsche Bank sees the rupee at 65 per USD for end of the year. The appreciation related volatility has been extraordinary, so rupee is still not out of the woods.
The Reserve Bank of India will perhaps not ease rates in the near term, says Taimur Baig, India Economist, Deutsche Bank. "All this rally and bounce back in sentiment is too new for RBI to declare victory on whatever they have been trying to do and start taking back measures," he says. He believes it will take another 2-3 months for RBI to rollback measures.
He feels the bounce back in global sentiments has helped the Indian currency. FCNR swap too helped and the worse is probably over for the rupee, he adds. He sees the rupee at 65 per USD for end of the year. The appreciation related volatility has been extraordinary, so rupee is still not out of the woods, he says.
On the data points that came out last week, he says there will be more focus on CPI, both core as well as headline. The fact that food prices are still high is a major source of concern, he adds. The game changes when the focus is on CPI as against WPI because suddenly inflation is in the 9 percent range instead of the 6 percent range. He forecasts GDP growth at 4.5 percent. Though he adds, there needs to be some revival in investment and a big pick up in net exports related contribution to growth, otherwise even 4.5 percent will be at risk.
Below is the verbatim transcript of Taimur Baig's interview on CNBC-TV18
Q: What do you expect to hear from the Reserve Bank of India (RBI) Governor on September 20? Do you think he can do any kind of easing, cash reserve ratio (CRR) on daily basis been brought down by 99 to maybe 80 or 90, any kind of easing at all he can do?
A: The short answer is no. For the time being all these rally and bounce back in sentiment is too new for the RBI to declare victory on whatever they have been trying to do and start taking back measures. I think that is at least another two-three months away.
Q: What is the sense you are getting on the rupee now. Relieved by the pro emerging market wave that we saw in the last ten days but what would be the range that you would give it and still what lows would you look for by December or March 31?
A: We have to basically break down to what extent India has lucked out because of the emerging market (EM) reversal of sentiment and to what extent the measures whether the foreign currency non-resident (FCNR) or the oil company swap have gone into change sentiment.
If you look at year-to-date percentage of change in exchange rate, not much different from India with South Africa or Turkish lira. So, from that point of view we could argue that it is the bounce back in global sentiment that has helped the rupee more than anything else but the FCNR swap definitely helps and we can say that the worst is over for the rupee going forward. We are also seeing some fundamental improvement on the current account side.
So, my forecast is 65/USD for the end of the year but the volatility is so big; we talk about volatility when the rupee is depreciating. The appreciation related volatility has been also extraordinary. So, I do not think this exchange rate in the EM world in general and rupee is particular out of the woods.
Q: When you say year end, you meant December 31 or March 31, the 65/USD call?
A: In this particular case it’s identical, so March 31 and December 31 are both 65/USD.
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READ MORE ON Reserve Bank of India, Taimur Baig, Deutsche Bank, RBI, FCNR swap, rupee, CPI, WPI, GDP growth
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