R S Reddy, the chairman and managing director of Andhra Bank, expects the Reserve Bank of India to leave its key rates unchanged when it meets for the quarterly monetary policy review on July 27. The liquidity is still not plentiful and growth in deposit is not robust, he says. Edited excerpts of an interview with Sumit Sharma:
What are the factors that RBI could consider for its policy review?
I have mixed views as RBI has already used the option of raising repo and reverse repo rates (on July 2). Banks are raising a lot of money in reverse repo and liquidity is drying up. So, RBI may want to wait for some time. The cash reserve requirement may not be touched, as even a deputy governor said. Deposit growth has not been up to the mark and advances have not grown to a great extent. Liquidity could improve once government releases the money it got from telecom licenses.
What could RBI do?
RBI may not tinker with rates and will leave them unchanged. There may be some reference to financial inclusion and maybe the base rate. RBI has the option of raising the rates later. It’s only now that the economy is coming back on track and one should not create problem for that. Deposit growth hasn’t been robust too.
Is Inflation not worrisome?
There are so many factors that are leading to the rise in inflation rate. It could even be the ‘feel-good’ factor that is prompting people to spend more money than they have, as I read somewhere. The impact of supply side is a little less. The impact of earlier increase in rates will also come in with a lag effect. So, it’s going to be slightly difficult exercise (for RBI).
What could prompt a review later?
One will have to watch the impact of a good monsoon and earlier measures taken by the RBI. Credit off-take starts in a big way later in the year. Infrastructure funds are looking to raise money in equity and other avenues now. Once they come in for the debt component, the demand for money will rise and any rise in rates could have an impact on their costs.
