Anant Narayan of Standard Chartered Bank feels that finance minister P Chidambaram’s statements about reducing the widening fiscal deficit is encouraging for the markets . The market is building up hopes and is focusing too narrowly on diesel price hike, he added. Meanwhile, given the improvement seen in the liquidity situation over the last few months, he doesn’t expect the central bank to announce any open market operations (OMOs) in the near future.
"In that case the relentless supply coming in from the government, Rs 15000 crore a week, week after week is going to take its toll on the 10 year bond yields," he added. So he expects the bond yields to hover in the range of 8.15%-8.40% going ahead.
Below is the edited transcript of Narayan’s interview with CNBC-TV18
Q: What exactly is your expectation of the rupee post all of these statements and the positive statements that came out from the finance minister (FM) yesterday or do you think that it is the euro and the risk rally that is helping us today?
A: On both fronts we have some positive news. Globally there is a risk on, euro has climbed up. There is a move towards risky assets globally. And plus of course we saw some pretty encouraging statements coming in from the finance minister yesterday, somebody whom the market can take confidence from. But a lot of things have to happen in real terms especially on the domestic front for the trend to sustain and for some confidence to come back into the markets both on the fiscal and growth front.
On the fiscal front, the market has been expecting some action, particularly a diesel price hike for a long time. May be that’s a bit overhyped that particular point about the diesel prices. But some kind of control has to be demonstrated. The fact that we are cognizant of the issues on the fiscal front, I don’t think we need miracles there. But we need some action to show that there is something to keep a lid on the fiscal deficit from going away.
On the growth front action is required as well. A lot of the issues both on the current account as well as on the fiscal front, find their genesis in the lack of growth particularly infrastructure and investments. We do need things happening there which give a fillip to actual infrastructure investments in the country. Both these are required to give market the confidence that the worst is behind us for dollar-rupee. Expect that to pan out hopefully over the next few months while things will remain choppy. Hopefully, we will see a level below 55 in the months to come.
Q: Is the market still hopeful about a movement on diesel after the parliament session and the Finance Minister spoke about a fiscal consolidation road map? Can we lend any credence to that? Is anything possible on the fiscal consolidation at this point?
A: It definitely is. Maybe the market’s focusing too much narrowly on diesel prices, sure that would be a good place to start given that’s an obvious area of subsidy. But some control and some ways of showing higher revenue, which sort of address the overall fiscal deficit is what the market is looking for basically to assuage rating agencies.
I don’t think the rating agencies are looking for miracles. They are looking for a sense that people are aware of the issues relating to the fisc and are taking valid steps towards controlling that.
There is definitely an expectation and hope in the market that there would be some concrete steps to follow up on the very positive statements, which came out from the Finance Minister yesterday to address the fiscal front. We need something on the growth front as well for macro economic stability.
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