RGE’s Arnab Das – Rupee Will Underperform, Not Bullish on it
In an interview with ET Now, Arnab Das , MD, Roubini Global Economics talks about how the Indian economy will grow this year with a special emphasis on the country’s investment cycle and rate cuts. Excerpts:
ET Now: What are your views on the projected sub-7% growth and the correction in inflation? Is it as per expectation?
Arnab Das: It is becoming the consensus and we certainly share that. We are quite concerned that the world economy including India, which is an important part of the world economy, would slow down quite significantly. We expect the world economy as a whole to grow sub-3% this year partly because of the crisis in Europe and partly because we expect the US recovery to be quite anaemic with 1.7% growth this year. Similarly, we expect India to continue to underperform.
Many countries in the world will have below trend growth this year despite the optimism that is taking place right now. The optimism is justified in various risky asset classes and the rally probably has room to run, particularly if the upcoming LTRO tender in Europe is a very large one. This is because it will help further stave off and firewall the event risks in Europe against the banks and the event risks in Greece against other countries. This will have a positive effect around the world.
ET Now: Do you see a pickup in the investment cycle going forward and when do you believe it will happen in India?
Arnab Das: There is every reason for the investment rate to rise in India. The infrastructure bottlenecks and needs are well known and often talked about. The question is about having the right global and local macro environment and the right business operating in financial conditions. None of aforesaid things are going to be ideal.
However, once interest rates have started to ease more aggressively and people see bottoming in this cycle, we will see a pickup in investment and particularly in infrastructure. The private sector will have to do more of the heavy lifting given the fiscal constraints that the central government is facing.
ET Now: Why do you believe India is not near the end of the rate cycle? Do you believe there is still a case of a rate hike and what’s the probability outcome of the same?
Arnab Das: We have changed that view because we did call for a cut in the cash reserve requirement and a temporary pause in the rate cycle. We are expecting several rate cuts from the RBI. We had made those points before the onslaught of the credit crunch from Western Europe and its impact on emerging markets including India. This is why we are not so bullish on the Indian currency.
Emerging currencies have rallied quite strongly to a large degree in response to ECB LTRO and the return of risk appetite. Currencies have rallied more than the underlying assets in many cases. We are quite concerned about the external financing issues in India. There are twin deficit issues and the lack of room for fiscal manoeuvre. So, we are expecting a series of rate cuts with the hope that inflation with growth will tail off and therefore the currency will tend to underperform.
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