In the second quarter review of the monetary policy held today, RBI hiked the repo rate by 25 bps and has cut the Marginal Standing Facility (MSF) rate by an equal quantum. Besides that, RBI also increased the liquidity provided through term repos of 7-days and 14-days tenure to 0.50% of banks NDTL from 0.25% earlier.
Sujoy Das, Head – Fixed Income, Religare Invesco Mutual Fund while speaking to Manu Kaushik of Smartinvestor, assesed RBI monetary policy and spoke on how high credit to deposit ratio is a cause for concern to the banking industry.
SmartInvestor : What is your assessment of the latest policy move? Do you think that the RBI will hike rates going ahead... say the next one year.
Sujoy Das : The policy move of RBI Governor has been as per our expectations. The repo rate hike and the MSF rate reduction is appropriate given the rising inflation and improved stability in the currency market. We are not ruling out further repo rate hikes over the coming months in case of heightened inflation risk which might be a base case.
SmartInvestor : Do you see inflation moderating over the coming months?
Sujoy Das : We are not expecting inflation to moderate for both CPI and WPI gauge to moderate over the coming months as we enter the busy season of economic activity and some hikes in the administered petroleum price hikes for diesel along the way. The effect of a good monsoon is expected to some small softening effect on food inflation briefly. Overall we expect the inflation to be largely at similar levels with some hardening effect over the months.
SmartInvestor : The central bank has cut FY14 GDP growth forecast to 5% from 5.5%. If the condition were to continue as it is today, do we see GDP forecast to sub 5% levels?
Sujoy Das : The economic activity is slowing down over the quarters. In the absence of any improvement, a sub 5% GDP growth is not ruled out. However, the actions of RBI towards normalizing the liquidity conditions and certain policy actions of the govt. is expected alleviate the conditions.
SmartInvestor : Although the RBI has cut the repo rate but on the other hand a cut in the MSF rate will bring in liquidity. With credit growth sluggish what could be the impact on bank's core business?
