Don't hold your breath on an RBI rate cut: Mark Konyn

In an interview to CNBC-TV18, Mark Konyn, the chief executive officer of CCAM says policy options remain rather narrow for the Reserve Bank of India right now.

‘The slowdown that we are seeing is a reversal of that period of excessive growth that generated the overheating in the economy and the subsequent inflation,” he says, adding that rather than a rate change, he would be hoping for some constructive policy moves from the Centre.
With all the noise that’s coming out of Europe, he says market players are forgetting that a lot of the exuberance in markets through the first quarter and slightly beyond was on the back of slightly more positive numbers coming out of the US which have been less forthcoming recently.
"We can speculate whether or not QE3 is coming but the bigger issue really is what is it going to take to get the real economy moving," adds Konyn. Below is an edited transcript of his interview. Watch the accompanying video for more. Q: The data has increasingly been negative both out of India, we have seen a dismal PMI number from China but the contention in the equity markets seems to be that policymakers will act and there will be easing. Do you think it is prudent to go with this view that easing could help the equity markets or should people be reacting to the negative cues?
A: In some respects, I think the policy options still remain rather narrow for the RBI. The slowdown that we are seeing is a reversal of that period of excessive growth that generated the overheating in the economy and the subsequent inflation. I certainly wouldn’t be holding my breath waiting for a rate change. I would certainly be looking for more constructive policies coming out of the government. Q: The US jobless claims were a little below estimates yesterday. The non-farm payroll data is expected today. In light of the macro data, what is your expectation of a possible QE3 coming out from the US?
A: You are absolutely right to focus on the US because with all the noise that’s coming out of Europe, we seem to forget that a lot of the exuberance in markets through the first quarter and slightly beyond was on the back of slightly more positive numbers coming out of the US which have been less forthcoming. In fact we have seen if anything negative surprises coming out of the US.
Let’s focus back on the US because that is really going to be the key driver as ever of the global economy. As we look at these slightly weaker set of numbers coming out, both in terms of the revision for the first quarter GDP and the weaker job numbers which likely means the numbers we are expecting from the US today are going to be below previous expectations but only slightly so.
It does mean that we are bumping along the bottom of expectations for growth for the US and that will probably be the case for a little longer. The question about QE3 is really a question of the efficacy that we had so far and QE2 rather  have been very effective shoring up the financial system but they have done very little to address the issues in the real economy. So you can speculate whether or not QE3 is coming but the bigger issue really is what is it going to take to get the real economy moving. Q: Say there is a possibility of an operation twist or a QE3 which comes in, where do you think India would be placed at this point in time even as a trading idea for the liquidity boost that we could get?
A: As we have seen with the inflows during the first quarter in all emerging markets, all risk assets including India much of that was predicated on borrowings, leverage fund flows into emerging markets and as we have seen that reverse, particularly, through the month of May, it is an unwinding of that leverage. The question is what is going to encourage that leverage going forward. Even if there were more stimuli coming out of the bigger economies such as the US for example or a rate cut in Europe, the issue is there is a lack of high quality collateral within the banking system.
There are very few sovereigns now which trade at a higher level of credit rating and what there is out there is really soaked up by a lot of central banks particularly in Asia. So it does sort of lower the probability of that re-emergence of flows through risk assets as we work our way through the summer. Should that be the case, investors would be looking for those markets that have underperformed where there is more chance of a better performance going forward. Unfortunately, which probably you don’t want to hear sitting in India, it is still the case that India is going to lag.