RBI Will Take More Liberal View On Rates In Next Few Months, Says Keki Mistry

Keki Mistry of Housing Development Finance Corporation Ltd. said the Reserve Bank of India will have a more “liberal stance” towards interest rates in the coming months to aid growth.

“Given that inflationary pressure is under control and growth needs to pick up, the RBI will, in the coming quarters, take a more liberal view on interest rates and look at cutting rates once they have a clearer view on what the monsoons are likely to be,” Vice Chairman and Chief Executive Officer Keki Mistry said.

This comes after the Monetary Policy Committee cut its benchmark repo rate by 25 basis points in response to lower-than-expected retail inflation. The committee also changed the policy stance to ‘neutral’ from ‘calibrated tightening’ and indicated that there may be scope of more rate cuts.

“The RBI will wait for a ‘proper look’ at what the monsoons are likely to be and will take decisions on rate cuts,” he told BloombergQuint in an interview. “If the monsoon outlook is reasonably alright, the RBI will go for more rate cuts.”

Private weather forecaster Skymet earlier this week predicted that the monsoon rains are more likely to be below normal this year with warmer Pacific waters even raising drought fears.

Mistry also expects the announcement of election results to ease the tightened liquidity in the system.

“Once the elections are behind us and we are into the latter part of April and more towards the election results in the latter part of May, you will see liquidity flow back into the system.”

Other Highlights

• Cost of funds for banks does not straightaway reduce when the RBI cuts rates.
• With March 15 being the last date to pay advance taxes, a lot of liquidity “suddenly gets sucked out”.
• Liquidity starts streaming back to the system as the government starts spending in April with the beginning of a new financial year.
• External benchmark does not necessarily have a link to cost of funds for a bank.
• Unless growth in deposits picks up, transmission of rate by banks will be difficult.

Watch the full interaction here: