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    Commodity prices may surprise and lead to inflation: Sudhir Agrawal, UTI MF

    Synopsis

    We have to be very cautious about how the commodity prices moves from here

    ET Now
    In a chat with ET Now, Sudhir Agrawal, Fund Manager Fixed Income, UTI MF, says we have to be very cautious about how the commodity prices moves from here. Edited excerpts



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    ET Now: The Bank of Japan first has decided to maintain the monetary base rate at 80 trillion Yen. I would like to know what is the kind of impact that both the central banks -- be it the Fed or the Bank of Japan -- have on emerging markets and what does it really mean for India?

    Sudhir Agrawal: Earlier also, the US Fed had pointed out that the further move will be dependent on data. So they are still seemingly in data dependency mode, they are still waiting for inflation to pick up, they are still waiting for signs of growth to stabilise. So I will say though they have been less dovish than expected so they have remove the language or rather the sentence on the global financial turbulence but overall that has been more kind of a non-event and from here on the market will be rather looking at the data points going into June and probably that will be the data will be ultimately driver of what the Fed will do going forward in the upcoming policy but the case still remains in line with what even Fed is talking about to rate hikes this year and only the timing might be slightly uncertain so the next rate cut probably might happen in June if overall global scenario is I will say stable. On the Japan, I will say BoJ has surprised a bit so on that side people were expecting them to expand the QE programme which has not happened and that is probably because of the realisation because last time when they expanded QE they gone to negative interest rate that time against the expectations their intention was to weaken the currency but that has not happened. So rather the currency has strengthened from there. Overall, they want to first see the impact of that previous moves and then only act because they do not want to get into a situation where they further expand the QE and that tool also just gine waste.

    So from the emerging market perspective I will say the Fed will be more important and that volatility will still continue to remain in the emerging markets till they are able to see some decisive move coming from the Fed side and again that will be dependent on data such as the inflation and growth and from that perspective one more important thing will be commodities. This is something one will have to watch out for carefully because it might surprise and as a result, the inflation might move in either side depending on the commodity move.

    ET Now: But when you are saying that commodity prices could surprise, are you anticipating that this rebound rally will continue and which is why that will trickle into numbers, inflation picking up because that is the Fed’s expectation as well, something that they highlighted in their policy statement that maybe in the second half of the year, if crude stabilises between $40 and $50 to a barrel, they would find more comfort in the inflation trend and, of course, if other commodities also rebound, that will show up in the numbers in inflation all over the world. But is your bias towards a pickup in inflation from here or could there be a negative surprise?

    Sudhir Agrawal: I will say overall, over one to two years, we have seen a lot of disinflation coming from the global commodity side . So be it metals or energy or agri, everywhere we have seen a lot of disinflation. So now, seemingly the way commodities have rebounded from the lows, looks like that probably the disinflation we have seen in last couple of years might not be seen going forward. If you look at crude for example, it is not just speculative activity which has taken the price up. Production numbers have also gone down in US. So I will say the kind of levels we have seen three-four months back, might not be sustainable and a lot of supply moves out of the market at those kind of prices. So if at all, the trend is that crude or for any other commodities, if all these stabilises close to the current prices, then first of all, the first impact is you are not seeing any disinflation anymore from the commodities which helped inflation go down in the last two years. The second thing is if at all, the supply overall keeps going down because of the lower prices. That probably might put pressure and that is the point. I think we have to be very cautious about how the commodity prices moves from here.

    ET Now: The other aspect to the story is what is the outlook on currencies? Now that the dollar finds its level at roughly about 95, you know you are looking at the Yen strengthening further today and that is clearly not very good like we have been discussing the Bank of Japan does not really want a stronger Yen, their efforts have been to keep the Yen weaker because that helps their exports, but for emerging market currencies and India is it a range bound trade then because you would see the dollar also get impacted with the way the Euro and the Yen moves as they constitute a large portion of the dollar index?

    Sudhir Agrawal: So I will say for the time being it might be range bound till we get further cues on the US data points so the close range of around 66.25-67.25 looks like might be the immediate trading band on the rupee side but I think it should move in either direction in big way only if you get some surprising data on the US Fed front. So I think we will have to wait for that data and probably you know two, three more months and then see if Fed is deciding to move as per market expectation in June or not. So I think that will drag our currency further.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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