NEW DELHI: Bank of America Merrill Lynch ( BofA-ML) is of the opinion that a US economic recovery will eventually benefit India.
However, the bank acknowledges that initially, the recovery may impact all emerging markets negatively. "We reiterate our contrarian view that India will eventually benefit from US recovery.
Yet, it is just as natural that markets may initially tar all EMs with the same brush," Indranil Sen Gupta, India Economist at DSP Merrill Lynch (India) said in his report.
The bank's US economist Ethan Harris, still expects the Federal Reserve to begin tapering in December, but grants that September will be a close call.
"Three scenarios seem plausible: (1) rest of economy quickly converges to the employment data and Fed starts a steady move to the exit in September; (2) Fed decides reduced downside risks make case for one-time dial down in QE, so they taper in September, but then pause for an extended period,
waiting for clear broad-based improvement; and (3) Fed decides to wait for broad confirmation in data and doesn't start tapering until December, which is our base and out of consensus case," he says.
The bank feels that the Reserve Bank of India (RBI) will find it difficult to sell beyond $30 billion, as a whole, with import cover already halving to 7 months in 4 years.
"The rupee will likely hit Rs62/USD if it breaches Rs 60/USD," the bank feels. The bank feels that it is critical to mobilize lumpy capital inflows to augment RBI's armory.
"The policy options include NRI bonds, raising FII debt limits, hikes in FDI in telecom, defense and supermarkets, FII equity limit on PSU banks," says Sen Gupta.
According to Sen Gupta, higher rates will not help stabilise the rupee. "Yet, the RBI will understandably want to avoid controversy by cutting rates on July 30 in view of the rupee volatility.
It will likely cut CRR by 25 bps to pull down lending rates to support growth,' he says. The bank retains its 75 bps RBI rate cut call for FY14.
indiatimes.com
However, the bank acknowledges that initially, the recovery may impact all emerging markets negatively. "We reiterate our contrarian view that India will eventually benefit from US recovery.
Yet, it is just as natural that markets may initially tar all EMs with the same brush," Indranil Sen Gupta, India Economist at DSP Merrill Lynch (India) said in his report.
The bank's US economist Ethan Harris, still expects the Federal Reserve to begin tapering in December, but grants that September will be a close call.
"Three scenarios seem plausible: (1) rest of economy quickly converges to the employment data and Fed starts a steady move to the exit in September; (2) Fed decides reduced downside risks make case for one-time dial down in QE, so they taper in September, but then pause for an extended period,
waiting for clear broad-based improvement; and (3) Fed decides to wait for broad confirmation in data and doesn't start tapering until December, which is our base and out of consensus case," he says.
The bank feels that the Reserve Bank of India (RBI) will find it difficult to sell beyond $30 billion, as a whole, with import cover already halving to 7 months in 4 years.
"The rupee will likely hit Rs62/USD if it breaches Rs 60/USD," the bank feels. The bank feels that it is critical to mobilize lumpy capital inflows to augment RBI's armory.
"The policy options include NRI bonds, raising FII debt limits, hikes in FDI in telecom, defense and supermarkets, FII equity limit on PSU banks," says Sen Gupta.
According to Sen Gupta, higher rates will not help stabilise the rupee. "Yet, the RBI will understandably want to avoid controversy by cutting rates on July 30 in view of the rupee volatility.
It will likely cut CRR by 25 bps to pull down lending rates to support growth,' he says. The bank retains its 75 bps RBI rate cut call for FY14.
indiatimes.com
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