Most experts are expecting a status quo from the Reserve Bank on policy rates. Indranil Sengupta, chief economist India, Bank of America Merrill Lynch too agrees with the majority view. He says growth is surprising policy projections on the downside, while inflation has softened. He will be watching the RBI commentary closely along with the immediate action.
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On the rupee closing above 60 per dollar on Friday, Sen feels rupee is always seasonally strong towards the end of March because that's when exports pick up and IT companies repatriate funds. Besides that, the dollar too has been week and emerging markets, India in particular has received a lot of portfolio flows. But he expects RBI to buy dollars as India's import cover is just 7.5-8 months. He expects the rupee to be in the broad range of USD 60-65.
Sen expects CPI to come down to 7-7.5 percent by March 2015 on the back of stable rainfall. If not, food prices may rise. He says in case of an El-Nino, CPI may once again get stuck in the 8-10 percent range.
Below is the verbatim transcript of Indranil Sengupta's interview with Anuj Singhal and Ekta Batra on CNBC-TV18.
Ekta: What is your expectation from the Reserve Bank of India (RBI) tomorrow, do you think that they could possibly even surprise the markets on the upside maybe hiking rates?
A: We are expecting a pause tomorrow given that growth is clearly surprising policy projections on the downside and inflation has softened to 8.1 percent, which is close to RBI's own 8 percent 12 month target.
Anuj: Were you surprised by the kind of trend that we had on Friday in currency market and the fact that it closed below 60/USD mark and do you think there will be some intervention now that we have breached that mark?
A: I think that the rupee is always seasonally strong towards the end of March because that is when exports pick up, that is when seasonally IT companies repatriate their money. So that is point one.
Secondly, of course the dollar has been weak and thirdly and clearly emerging markets in India in particular have received a lot of portfolio flows. Now that said, I do expect the RBI to buy Fx because our import cover is just 7.5-8 months and even if we want to take it to 10 months, which we had in 2000, we need to buy USD 80 billion. So, I do expect the RBI to buy Fx.
Ekta: What is your best case and worst case scenario on the rupee taking elections into the context?
A: We are looking at a range between 60/USD and 65/USD.
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