Emerging economies such as India will experience some volatility. But we don’t expect the kind of volatility we saw in 2013 during the taper tantrum, as the fundamentals of the Indian economy in terms of macroeconomic variables are now much stronger.

India is now in a much better position than it was in 2013, when the taper tantrum hit the markets, thanks to higher forex reserves and the RBI’s explicit inflation-control mandate, said Puneet Pal, head of fixed income, PGIM India Mutual Fund, in an interview with Manish. M Suvarna. fragments:

Given the volatility of Brent crude prices, how do you see inflation figures in the coming months and will the RBI revise its estimate upwards?

In April’s policy, the RBI will likely revise its inflation forecast upwards, but it depends on how much they revise it. With the volatility of oil prices and if they continue to hover around $100 a barrel, the RBI will have to revise its inflation forecast higher. The government has not revised fuel prices in recent months. So we have to see how much the government will absorb by cutting excise taxes and how much it will pass on.

Under the current scenario, do you think the RBI will consider raising rates or changing its stance from accommodative to neutral in the next policy, taking into account the geopolitical tension and its implications for the Indian economy?

We don’t think the RBI will change its stance or rates in the April policy because the RBI was quite moderate in the last policy. Even seeing the recent comments from MPC members, including Michael Patra and Ashima Goyal, they weren’t too concerned about the spike in oil and commodity prices. Therefore, we do not think there will be any change in the monetary stance or the policy rate. The RBI may raise the inflation forecast and maintain an accommodative stance. However, if commodity prices remain high, there could be a change in both stance and rates in June policy.

What impact will the end of the cheap money era have on emerging economies such as India?

Emerging economies such as India will experience some volatility. But we don’t expect the kind of volatility we saw in 2013 during the taper tantrum, as the fundamentals of the Indian economy in terms of macroeconomic variables are now much stronger.

How is India’s external sector and can it survive the downsizing?

We are now in a much better position than we were in 2013 when the taper tantrum had hit the Indian markets. Forex reserves are high and the RBI has an explicit inflation control mandate. Since our relative macroeconomic variables are much better now, we shouldn’t have too much of a problem, even though central banks around the world, especially the US Fed, could begin to reduce their balance sheets along with rate hikes.

How will India’s growth be affected given the slowdown/stagflation in Europe and other parts of the world?

We do not currently expect a stagflation scenario. If geopolitical problems persist and commodity prices remain high, the stagflation story may hold, but as of now, this is not our base case. India’s growth may be impacted through the trade channels and if Brent crude and commodity prices remain higher we may see some impact on growth and inflation.

There is volatility in the rupee due to global signals. Do you think it will continue and the rupee will depreciate further?

There will certainly be some volatility given the uncertain geopolitical scenario and high commodity prices, especially as India is a net importer of commodities. But if we look at the trend of the last 3/4 months in the rupee, it has not fared badly even after being sold by FPIs. The rupee is down 1.63% YTD in value against the dollar, but we have not seen major volatility or significant depreciation pressures as we saw in 2013 (7%-10%), given high forex reserves, which have given the RBI quite a bit provide a buffer to intervene and manage volatility.

Where do you see the benchmark return in FY23, given the higher borrowing announced by the government? And how much demand will green bonds receive from domestic investors?

Over the next 3-4 months, we expect the benchmark’s 10-year GSec yield to be in the range of 6.75% to 7.25%, and should not go any further as both the RBI and the government are forecasting yields on a actively manage. As for green bonds, we are still waiting for clarification on quantum and issuance method.

How do you see FPIs flowing in the Indian debt market, given the expected rate hike by the Fed and high inflation rates in the US?

Inflation in the US is quite high and the Fed is expected to raise interest rates, so we don’t expect many FPIs in the Indian fixed income market. Inflows were negative last year and will be less this year as other central banks raise interest rates, while the RBI is only expected to raise interest rates gradually.


This post India is now much better placed than 2013 to survive run-down: Puneet Pal, Head – Fixed Income, PGIM India Mutual Fund was original published at “https://www.financialexpress.com/industry/banking-finance/india-much-better-placed-now-than-in-2013-to-survive-taper-puneet-pal-head-fixed-income-pgim-india-mutual-fund/2463134/”

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