Financial Daily from THE HINDU group of publications
Tuesday, Jun 06, 2006
Financial Daily from THE HINDU group of publications Tuesday, Jun 06, 2006 |
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Markets
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Interview
The Chief Economist of CLSA, Mr Jim Walker, expects Fed to raise interest rates by 25 bps within a month. He says that the global liquidity conditions are tightening; hence the scepticism in emerging markets is justified. Mr Walker also adds that European Central Bank and the Bank of Japan would hike their interest rates soon; in fact Bank of Japan is considering of hiking it by 75 bps. According to Mr Walker, the risk appetite for hedge funds is waning. He expects a risk of recession in the US and exporters would be hurt in the bargain. Mr Walker believes that India is not as badly placed as other Asian countries. He expects RBI to raise interest rates by 50 bps in July. Excerpts from CNBC-TV18's exclusive interview: Emerging markets across the board have been fairly apprehensive about the global liquidity picture now. Do you think that the caution is justified that things may not be the same as they have been for the last couple of years? I am afraid to say that this scepticism is justified. Global liquidity conditions are certainly tightening. US have been on a strike over two years now; I think it has still a little further to go. But starting this week, European Central Bank will begin to raise interest rates in a serious way. Then within the next 4-5 weeks, Bank of Japan will follow suit. So, we have all the major central banks raising interest rates at the same time. I think the outlook for the next two years is that of a tightening global liquidity and weakening appetite for risk. What does RBI have to do now because last time you said it had fallen a little bit behind the curve? It is a 50 bps rise in July and that is really backed up by last week's numbers on the last quarter of the fiscal year. The first quarter of 2006 GDP growth, at around 9.3 per cent was stunningly good growth for India. That was obviously helped by an excellent agriculture sector with the monsoon coming through. Loan growth is extremely strong and inflation rates are rising across the world and also in India. More work needs to be done on rising fuel prices in India. I think the central bank needs to get its act together and start rising, as it should do in an economy that is growing as fast as Indian economy. I think 50 bps is on the cards for July. With your expectations on global liquidity, would you predict a bearish kind of market for global emerging markets and for global liquidity in the foreseeable future? It is difficult to make a call but I am a bit concerned about the emerging markets when risk appetite is falling globally. I would like to say otherwise, because most of the markets we cover are accompanied by emerging markets. It has never been the case before and I don't think things have changed that dramatically. I think there is a better quality of earnings results coming through from emerging markets. I think they might not under perform as they usually do in a tightening liquidity environment. But, the best of the market rallies are over for 2006.
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