Government needs to take urgent fiscal action, little room with RBI: Jim Walker

NEW DELHI: Emphasising the need for the Indian government to take more fiscal action on an urgent basis, Jim Walker, MD & Founder of Asianomics told ET Now that the Reserve Bank of India (RBI) has very little room to manoeuvre monetary policy. " RBI will maintain a status quo monetary policy on September 20," he said.

Analysts are of the opinion that weighed down by concerns of a volatile and depreciating rupee, persistently high inflation and a huge current account deficit, Rajan is unlikely to reduce key rates in his September 20 monetary policy review.

While acknowledging that Indian companies with a track record to deliver returns are good bets, Walker said that he is not looking to buy Indian equities currently. Asked about the recent recovery in the rupee and his view that the downside is limited, Walker said that the Indian currency is oversold and he sees a fair value for it at levels of 60 versus the US dollar.

Commenting on the much awaited direction on Quantitative Easing (QE) from the US Federal Reserve, Walker said that the withdrawal of stimulus will be a very slow process. "I don't expect the US Fed to announce a timeline for QE tapering. US Fed is unlikely to surprise the markets," he said with reference to the US central bank's meet later in the day.

Stating that the US economic data is mixed, Walker said that the economy is still 'soft in some pockets'. "I expect QE tapering of $10 billion in bond buying programme. US dollar is unlikely to strengthen post the Fed meet," he opined.

For the Fed, consensus has congealed around a reduction of $10-$15 billion a month with all purchases ending by the middle of next year. Yet even that cautious timetable would be contingent on the economy performing as well as expected.

With such an outcome largely priced in, it could lead Treasuries and the dollar to rally modestly. A slower tapering would tend to benefit bonds and stocks but hurt the dollar.

Walker recommends going long on ASEAN economies and expects emerging markets to gain once there is more clarity on QE tapering. Asked about the Chinese economy, Walker said that there is not much clarity on whether it is recovering or not.