B Prasanna, head-global markets group of ICICI Bank, says country's March trade deficit number was expected by the market and it will come down a little over the next 12 months in the future. Son of famous Tamil director K Balachander, Prasanna, who was the chief executive officer and managing director of ICICI Securities Ltd, expects bad monsoon to push food inflation. He added, "I think a bit of an increase in food inflation will be kind of matched by a reduction in core inflation as we go ahead."

Edited Excerpts:

Q: How did you look at the trade data and what are you pencilling in on the currency?

A: The trade data from yesterday was a lot of positive from a medium-term perspective. It’s a heartening impact that export is doing very well. Import not doing too well is a negative from growth perspective not a negative from the external balance perspective. However, what happened was this number was more or less kind of expected by the market and on year-on-year (YoY) basis, the number looks good. From a sequential basis, February was a trade deficit of less than $10 billion, so there is a surge of marginally higher than $10 billion.

So to that extent, the market had expected this kind of data coming in. However, the data from an overall perspective is quite good from a trade deficit perspective and we actually are expecting the trade deficit to come down a little over the next 12 months.

Q: Where is the currency headed? After all, we are seeing a decent foreign institutional investor (FII) flows?

A: That answer would lie in the market positioning and there were a lot of bunched up FII, foreign direct investment (FDI) flows, which was expected over the last week of March and in the early part of April. Given the big flows expected from Arcelor was also there in the market. Now with the court case coming in and if that is kind of reversed and that is possibly one of the reasons why we are seeing this kind of a position adjustment happening in the market. So, people went long just cutting them off.

Q: We did get a forecast from the India Meteorological Department (IMD) in terms of expectations of a normal monsoon this time around. What are you pencilling in terms of food prices? Do you see prices fall further cooling off inflation and hence, what is the expectation from the Reserve Bank of India (RBI) on June 7, another rate cut?

A: I think more than the IMD forecast, I would take some takeaway from the latest consumer price index (CPI) and Wholesale Price Index (WPI) reading, which possibly indicated that the deflation in food prices is possibly coming to an end and we are starting to see food prices inching up a little. However, in our expectations going forward, we are still comfortable on the headline inflation. I think a bit of an increase in food inflation will be kind of matched by a reduction in core inflation as we go ahead. So, nothing to worry about from an inflation perspective except of course monsoons are a big failure. Yesterday’s forecast seems to indicate that it is likely to be in the normal range or just below normal. However, that is again a forecast. If the forecast is not to come true and if things go bad, then there is definitely a possibility of inflation going up and in RBI’s own estimate expect 50 bps increase in food inflation. So, it’s really difficult to take a call right now. As far as RBI’s call is concerned, I would rather wait for the minute which is going to come out in a couple of days’ time to understand what was the thought process which went into the minds of the Monetary Policy Committee (MPC) members in terms of analysing the expected trajectory and what actually they are looking for to get the next rate cut.

First Published:Apr 16, 2019 7:22 PM IST