Ahead of the monetary policy review, B Prasanna, Group Executive and Head - Global Markets Group, ICICI Bank, believes India is in a sweet spot because of the fall in oil prices and improvement in current account deficit (CAD). Pegging GDP growth at 7.4 per cent for FY20, he says the view on rate cuts seems to be quite benign at present. In an interview with BusinessLine , he also shares his outlook for the year. Excerpts:

What is your expectation for the global economy this year?

Last year was a bad one for emerging markets and a good one for dollar asset classes as compared to 2017.

I think 2019 will evolve like 2017 for emerging market asset classes, as what primarily broke their back in 2018 was the performance of the dollar and dollar interest rates. But, after October 2018, oil fell and this improved at one shot the biggest macro problem for countries with a CAD problem.

The US will slow down along with all the other developed countries. If the trade war doesn’t flare up too much, emerging markets will grow reasonably well.

India is in a sweet spot because of the oil fall and improvement in CAD, fiscal deficit remains a concern but broadly the parameters have improved a lot.

The CSO’s advance estimates peg GDP growth at 7.2 per cent this fiscal but the PMI has been moderating. What is the reason for this divergence?

The question is how high frequency indicators are performing. Some segments of the services sector are doing well and some segments of the manufacturing sector like auto are not doing well.

There has been a gradual downgrade of GDP estimates for the current year, not just by the government but also by most analysts. For example, we started off with an estimate of 7.5 per cent, which was lowered to 7.4 per cent and now our projection is at 7.2 per cent.

As we said in our annual outlook, consumption is slowing down, investment has picked up but not private investment. So, investment growth is due to government spending. We expect GDP growth at 7.4 per cent next fiscal.

What is your expectation on a rate cut by the RBI?

There has been a dramatic increase in fears of a slowdown in the US economy over the past one-and-a-half months. This is because 2018 was an above-trend year driven by a push by fiscal factors. The feeling is that the US Fed will slow down its rate hikes and will also cease to tighten its balance sheet compared to what they had originally planned.

From an RBI rate perspective, I think the view is quite benign as oil is low and inflation has softened on a realised basis. We expect inflation to go up in the second half this year, but the space for a rate-cut has opened up. Though our house call is for a pause for the rest of the year, many market participants have started anticipating some rate cuts.

Do you expect further volatility in the rupee?

I expect the rupee to be in a range of 69-72 against the US dollar. We saw 74-74.5 last year but that is not something we might visit this year hopefully. This is because oil prices are low and on top of the reduction in CAD, there is also some expectation that FPIs might put in money this year as emerging markets will do well. So, equity and debt inflows will come in and currency will be stable. The depreciation of the rupee will broadly be determined by the inflation deferential of 2-2.5 per cent per annum.

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