Q & A with
Kartik Goyal of Bloomberg
Q1: How do you assess India's current economic situation? With CPI inflation still holding uncomfortably high and growth still near a decade low?
Q1: How do you assess India's current economic situation? With CPI inflation still holding uncomfortably high and growth still near a decade low?
A1: The recovery is firming up and we are on track for a 1%
point step up in the GDP growth rate, that I predicted on New Years eve.
Inflation is also on a clear but gradual downtrend, though some upticks can
arise from the poor monsoon.
Q2: What's your outlook on the U.S.
Federal Reserve raising interest rates and its impact on India? How well
prepared India is to face that and What can it do more to shield itself from
the impact of higher US rates?
A2: As I expect US recovery to be a
gradual one, my expectation of the Feds monetary policy is a gradual winding
down of QE and a corresponding rise in interest rates. There will be some
negative effect on capital inflows into India, but I expect this to be
temporary and short lived.
Q3: Do you think the RBI's current
stance, of maintaining high interest rates even as inflation has come down a
bit and the rupee is stable, is aimed at protecting the rupee when the US
Federal Reserve starts raising interest rates?
A3: No. The RBIs stance is clearly
directed at inflation expectations. In my personal view the inflation
expectations as measured by the available survey are a very poor substitute for
the inflation expectation expectations that would be reflected in a well
functioning market for inflation indexed bonds. In my view the former are way
out of line. Any RBI action to reduce rupee volatility will occour at the time
of instability.
Q4: How do you see the current
monsoon deficit and its impact on inflation? And, how will monsoon, high CPI
inflation will impact the RBI's monetary policy and the currency policy?
A4: Any impact of weak monsoon on
cereals can easily be managed by the massive stocks with FCI. However, there is
a possibility of some regional crop losses and a spike in thier prices. This
will merely slow the decline in inflation without breaching the 8% CPI
inflation target.
Q5: Do you think that the RBI is done with the rate tightening
cycle? and the future moves will be towards easing the rates? What do you think
will guide the RBI's monetary policy stance?
A5: Depends on inflation
expectations and actual inflation projections.
Q6: What's your outlook for the
economic growth? Do you have growth estimate for Fy15 and Fy16? How do you
think the recent election mandate will impact the economic growth in the coming
years?
A6: In my comments on Mr Jaitlely's
first budget, I had reiterated that GDP growth in 2014-15 would accelerate by 1
per cent from last year (i.e 5.6-5.7%) and could go up another per cent point
in 2015-16(ie 6.5 - 6.7%) if the policy actions hinted at in the budget
fructify
Q7: What's your outlook for the
rupee? Where do you see the rupee by the end of December? Do you see it
touching 70 against the dollar? Or it gaining or remaining stable and why?
Q8: What do you think are the
biggest risks to the rupee? Do you think the Indian rupee is overvalued given
inflation differentials with other rnations? What are the risks to the rupee if
the US Fed starts raising rates?
Q9: What's your view on the RBI's
currency policy? And what it can do more to shield the rupee?
A7-9: The rupee is currently fairly valued at around R60/$. I expect the rupee to remain within a band of +/- Rs 2/$ of this.
Q10: Dr Rajan in his speeches talked
about how the world is heading towards another crisis as the different central
banks move in different directions to protect their economies. What's your view
on that? And, what can India do to protect itself from the global monetary
policy breakdown?
A10: I am not sure I agree with the
timing of his remarks, so I don't think there is an immediate danger to India.
But in several speeches in the IMF board in 2011-2012 I had warned about a
Japanese style "lost decade for the Euro Area/EU" and a slow recovery for the US
given the policy mistakes they made in 2009-2010 (to which I had been drawing
attention since 2010 during their article IV discusssions).
No comments:
Post a Comment