Indranil Pan, chief economist, Kotak Mahindra Bank, tells Krishna Merchant that the apex bank may raise the repo and reverse repo rates by 25 basis points each in January. Edited excerpts:
Was the Reserve Bank of India’s mid-quarter policy in line with your expectation?
The policy was in line on the rate front. We were not expecting the open market operation (OMO) auctions expansion that RBI has announced. This is definitely a positive of the policy.
How do you see liquidity panning out, given the reduction of one percentage point in the SLR and OMO auctions worth Rs 48,000 crore?
RBI has said they need liquidity at plus/minus one per cent of net demand and time liabilities. This will bring us close to that. RBI does not want to signal a positive liquidity scenario, as we are still in the anti-inflationary mode.
However, given the current liquidity deficit of about Rs 1,00,000-1,10,000 crore, the infusion of Rs 48,000 crore will definitely help.
Global commodity prices are on an upswing, while petrol prices in India have also been raised. How much percentage will it add to inflation?
The rise in petrol prices is expected to add 20-25 basis points (bps) to the headline inflation.
Do you expect a rate rise in the January policy meeting?
We expect the repo and reverse repo rates to be raised by 25 bps each to tame inflation.
The credit growth has risen 23 per cent in the last fortnight, while deposits rose just 15 per cent. Is there a concern over this gap?
Well, this is leading to liquidity shortage in the banking segment, which is also pushing up rates. To that extent, it is evident that the credit growth is running ahead of the deposit growth.