FIIs to tread with 'caution' in India: Credit Suisse

In an interview with Latha Venkatesh, Banking Editor of CNBC-TV18, Robert Prior-Wandesforde, Head of India & South East Asia Economics of Credit Suisse spoke about Reserve Bank of India (RBI) breaking its sluggishness, raising its key policy rate to tame rising inflation.

Below is a verbatim transcript of the exclusive interview. Q: Your comments on the growth forecast, is it way too bearish- the range 7.4% to 8.5% with 8% median? Will it be sub 8% and also do you think this 50 basis point is the right way to go, what more are you expecting?
A: First of all, this meeting marks a change with the Reserve Bank of India (RBI) finally getting serious about inflation. A key question here is why the seriousness in tackling inflation came in so late. In September-October last year, it seemed crystal clear that inflationary pressures were intense, at that point underlying inflationary expectations and better measures of inflation than just the wholesale price index (WPI), why were they hinting at pores.
It suggests that they will lag behind, somewhat. Meanwhile, other interesting thing is that they are now prepared to accept some short-term negative growth consequences from this move and indeed it's on cards. Growth is likely to surprise on the downside. We are at the bottom end of the range at 7.5% for growth. Considering the 50 basis points (BPS) hike, we may get at least another 50 basis points beyond this. The real test for the Central Bank will be to continue rate hikes when the economic profit (EP) growth starts with 7% and can the politicians, the RBI continue to endorse it. We are going to look at the lower end of their range. Q: In another six weeks, the Reserve Bank of India (RBI) will issue a fresh credit policy statement and once more on July 25 or thereabout-what do you expect? Do you think the apex bank will continue with rate hike? Do you want them to continue with it because they expect inflation to remain around the 9%, up until perhaps September, until of course the diesel prices are passed off?
A: Yes, they will raise it again during the June meeting, possibly, after that as well. It will be very strange to come out with such hawkish set of comments and not continue the tightening of monetary policy. Everybody will be eying their capability to deliver, failing to which, they will surprise the market and cause general confusion as to where they are, or what they intend to do. The consequence of this is going to be a sub trend growth, and this is good news for India. It