Govt not in quick-fix mode; may see steps on INR: Barclays

The Prime Minister highlighted a few positives of the Indian economy in his address to Parliament today, but the government doesn't seem to be in a quick-fix mode, says Siddhartha Sanyal, chief India economist, Barclays Capital.

Speaking to CNBC-TV18, Sanyal says the government is likely to announce a few measures to combat the steep rupee fall in the medium-term.

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“Expecting measures that can generate very quick inflows, turnaround the fortune of rupee dramatically, etc may not be right as of now. However, over a medium-term period of time, one can possibly expect some more measures on the part of the government,” he adds. Below is the edited transcript of Sanyal’s interview to CNBC-TV18. Q: What did you make of the prime minister’s speech?
A: I see couple of things. Firstly, the government is not trying to reach any quick fix in this kind of a situation. They would try to take some kind of medium-term approach and the PM has highlighted a few positives here and there.
Expecting measures that can generate very quick inflows, turnaround the fortune of rupee dramatically, etc may not be right as of now. However, over a medium-term period of time, one can possibly expect some more measures on the part of the government. Q: As a rupee watcher or a dealer how would you look at it – as negative that he has not announced or you expect him to announce something in terms of a quick fix – will you see that as a negative or will you see it as a positive that he has his eye on the right parameters?
A: To be very honest, we had been expecting quick fix measures, big bang measures in the month of June or July. However, they had tapered down on that particular expectation quite a bit over the course of the last two months. Now the approach is that they are trying to announce a few measures here and there, but cumulatively that can actually help a bit at the margin.
Talks of reviving some kind of scheme or pushing the quasi government bodies to issue bonds in the global markets put together may be some kind of relief at the margin and we are banking a lot over the medium-term. The current account deficit (CAD) is improving at a rapid pace. We should not lose sight of that. Q: The RBI did mention that there should be a focus or rather the prime minister did mention that the RBI should focus on inflation – in the September policy what do you think the RBI could possibly do because we have seen a lot of other emerging markets hike rates in the past couple of weeks?
A: I don’t think in this kind of a situation, interest rate defense is the best defense we have and we should not really focus too much on that. I don’t expect that to happen. We have tried tightening money market liquidity etc over the course of last one-and-half months. Instead of that helping, the INR has just pushed up the domestic interest rates. I don’t think we should go ahead in that path, rather at some point of time if we can get better control on the INR, then we should start thinking how quickly and how effectively we can start easing on the excessive tightness on the money market.