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Jun 18, 2012, 05.32 PM IST
Arun Kaul, chairman, UCO Bank, says that the market was expecting a rate cut in both repo and CRR. Unchanged rate cut has clearly disappointed the market.
OMO is a preferred route because it not only inducts liquidity in the system it also redefines the yield curve, so certainly market loves OMOs.
Below is the edited transcript of his interview to CNBC-TV18. Also watch the accompanying video.
Q: Do you expect that there will be no change in deposit and lending rates? How will your cost of money move in the next quarter after today's RBI unchanged rate cut announcement?
A: Market was expecting a rate cut in both repo and CRR which is built into the price. Ten year new paper was moving at 8.15 and it went down to 8.02 and even went below 8% once. Unchanged rate cut has clearly disappointed the market. The yield is back to 8.12. Even the old 10-year paper which was as 8.79 at one stage touched 8.25 went up to 8.46 to 8.47 and now it's back to 8.41.
Q: Do you think there is no guidance on the horizon by when the RBI could cut rates? Are bankers in a phase of uncertainty now?
A: Inflation is not the cause of concern. Of course, OI (open interest) is coming down. The RBI governor has correctly talked about other compressed inflation particularly the primary articles and all those sectors are a cause of concern.
Q: How would export sectors benefit as there is a clear increase in the amount of refinancing banks can claim from the RBI and for a system as a whole you can claim refinance up to Rs 30,000 crore. Can you explain the process?
A: The focus is clearly on export refinance which will help to improve the liquidity in the system. The banks will be able to draw higher refinance; more money will be available to the banks.
Q: Will you be able to reduce rates for exports?
A: No. The critical point is, that the banks will be able to raise more money, the liquidity is more important. Instead of CRR cut, part of the liquidity will be met through the export refinance, the clear focus is to push exports as it will have a favorable impact on the currency and will encourage exports.
Q: Do you think there is enough deficit for people to borrow up to Rs 30,000 crore, will it be completely utilised?
A: No. Banks will be able to utilise the facility.
Q: There was a clarion call from the RBI that we will do OMOs (Open Market Operations). Do you think yields will not deteriorate much?
A: OMO is a preferred route because it not only inducts liquidity in the system it also redefines the yield curve. So, certainly the market loves OMOs.
Q: Is 8.12-8.13 a cap for the moment?
A: Looks like that.
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