RBI Guv not creating space for rate cut soon: Barua

Synopsis

Contrary to expectations, the RBI policy did not allow for a rate cut or explicit liquidity measures. The Governor presented a Goldilocks scenario, assuring the bond market of government spending and comfortable liquidity. However, the growth and inflation combination does not leave room for a rate cut in the near future.

abheek baruaNEW-1200ETMarkets.com

Decoding the RBI policy, Abheek Barua, Chief Economist, HDFC Bank, said that according to the RBI Governor, geopolitical and adverse climate events are becoming more and more frequent. So, there are a number of potential shocks. But that said, if you set those shocks aside, he painted a bit of a Goldilocks scenario. The bond market reacted to the fact that he assured them that government spending was coming through and liquidity would be comfortable. But with the kind of growth and inflation combination that he has presented, he is not creating any space for a rate cut anytime soon.

Time and again, the RBI governor has mentioned the risk from exogenous factors. Which are those factors and how meaningful could that risk be that could put the entire equation of risk management, inflation out of the window or could risk it at least?

Abheek Barua: The biggest exogenous factor is what happens in geopolitics and particularly what has already happened and the potential spillover effects, for instance, of the problems in the Red Sea, what kind of cost escalation of imports are we likely to see, what kind of supply bottlenecks we are likely to see, so that I think is the principal risk that is there. Then, he mentioned adverse climate events which are becoming more and more frequent. So, there are a number of potential shocks.

Unlock Leadership Excellence with a Range of CXO Courses

Offering College Course Website
Indian School of Business ISB Chief Technology Officer Visit
IIM Lucknow IIML Chief Executive Officer Programme Visit
IIM Kozhikode IIMK Chief Product Officer Programme Visit

We seem to be in a state of permanent crisis of some kind. But that said, if you set those shocks aside, I thought this was a bit of a Goldilocks scenario that he painted. The bond market reacted to the fact that he assured them that government spending was coming through and liquidity would be comfortable. But with the kind of growth and inflation combination that he has presented, he is not creating any space for a rate cut anytime soon.

So, as we push back expectations of a rate cut, it will have to be factored into things like earnings and so forth. I thought it was more upbeat on growth and a little cautious on inflation. It was not in line with my expectations. I thought it would have some room to manoeuvre and move towards a rate cut and some more explicit liquidity measures, perhaps not a CRR cut but perhaps some tweak in their existing set of fine-tuning operations to assuage the concerns of the banks and the financial sector.

(You can now subscribe to our ETMarkets WhatsApp channel)

(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

moreless

William Murphy

Related post