QE may end in 2014; India view high on rupee, FDI: Parker

If the US economy continues to grow at over 2.5 percent over the fourth quarter of this year and the first half of next year, it can be assumed that the QE programme will be brought to a close by the middle of 2014, says Robert Parker, head- strategic advisory group, Credit Suisse Asset Management.

Also Read: Bernanke: Fed to begin tapering bond buying later this year
Speaking to CNBC-TV18, Parker adds that the view on India remains highly positive with the appreciation in the rupee and the hike in the FDI caps in close to 13 sectors of the economy. Below is the edited transcript of the interview on CNBC-TV18 Q: The Fed chairman announced that there was no preset course as far as the asset purchase programme was concerned and that it would depend on the economic climate in the US. How would you read this comment?
A: The Fed chairman policy has been fairly consistent indicating that there is a high probability that the quantitative easing (QE) programme will be tapered. Secondly, its dependence on the state of the US economy is a sign that the QE will probably start to be reduced in September or October. If the economy grows at more than 2.5 percent over the fourth quarter of this year and the first half of next year, it can be assumed that QE will end by the middle of next year.
If the economy grows below 2 percent consistently over the next 9 or 12 months, then it is certain that QE will be extended. Bernanke is very keen to emphasise that the tapering of QE is not a tightening in monetary policy. Monetary policy will remain easy and there is little expectation of an increase in the Federal funds rate until very late 2014 or early 2015. Q: How do you think emerging markets will react?
A: The reaction already happened in the middle of May and late May and the causality was fairly straight forward which is that if you look at investor positions back early this year whereas investors were still fairly cautious on global equity markets. FIIs had very large positions in emerging currencies and in emerging debt and consequently the fear of QE being tapered had a profound effect on a number of emerging currencies and emerging debt where investors had very long positions.
The other factor is that the bond markets are very highly correlated. Consequently the backup in US treasury yields is now reversing but the backup where 10-year US treasuries at one stage went above 2.7 percent, that pushed emerging debt yields higher. With 10-year Indian yields above 8 percent, the backup in yields had a negative impact on emerging equity markets. But I think the overweight position by investors remains the major driving force in emerging markets. Q: What is the view now on India?
A: The view on India has turned more positive due to a number of factors such as the pullback in the rupee to 59.50 and the measures announced to ease foreign investment.