See Fed hiking rates in Sept; global growth fine: Deutsche

Latha: I want to ask you about the happening in the G20 and the commitment given by the Chinese finance minister over there that they are going to increase fiscal spending by 3 percentage points; from 7 percent to 10 percent increase in the budget estimates. Do you think that kind of a talk and a commitment that the instability in the market is more or less over will be taken positively?

A: I think so. All along we have expected that China can deal with the slowdown. Our economists covering China have been reasonably optimistic. Comments from China that it will not be slowing significantly below 7 percent, measures will be found, fiscal spending and not only they are committing more but they are finding ways to implement it locally, will be positive.

Latha: What about the job numbers. How do you expect Asia and the rest of the world to read it? Is it seen as US economy doing well but finally succumbing to the lower commodity prices and the general global slowdown?

A: The US labour market continues to carry things along with considerable momentum and the US economy is expanding at a pretty good pace. Our view is that the global economy, global growth picture has not deteriorated substantially. Some of the commodity price action has supply side. Yes, there will be a bit of slowing here now on the demand side and on emerging markets but overall we are not seeing a situation certainly that is going to cause effect, I feel they can raise rates this year and September is very much on the table.

Sonia: A September rate hike is very much in table is what you are saying?

A: Absolutely. We think it is a close call. We have felt for some time that they want to get the process started. They see the labour market in US having achieve pretty much what they want. There are some questions about inflation but they think that the temporary things holding it back will be receding. It is all now down to where the volatility in the market quite calmed down enough and certainly measures on the part of the Chinese will help but I still think we could get there by September, so important data to come.

Sonia: There has been a fair amount of risk aversion in the global equities though in the last couple of weeks. When we do get the first rate hike by the Fed, do you see more liquidity crunch in global markets?

A: I think the Fed hiking rates will certainly be taken as recognition that the US economy is doing quite well and that could be a positive for the equity market. The Fed will be very careful to emphasise that this not the beginning of an aggressive rate hike sequence, it will be a very slow process of raising rates. So, I tend to be optimistic on this one.

Latha: Two questions, one, do you think enough has been said and done by the Chinese authorities and others at the Group of Twenty (G20) for the markets to at least get into a period of calm? We have seen the level of volatility in all markets, from US all the way to China of an unusually high level. Does that get calmed down by this week or sometime soon? Second, the overall message from G20 is that the global economic growth has definitely slowed down and I assume some new numbers will come in from the International Monetary Fund (IMF) next month, I think October when they put out their revised numbers, is that priced in by the general fall in prices that we have already seen or are equities markets likely to discount these further and move lower?

A: I do think that things begin to calm down from here. There has been some moderate slowing, we don't see a sharp global slowing and we don't see major downside risks. So, my sense is that things will be beginning to look better; not worse from here.