Rate cuts only in Apr, inflation uncomfortable now: Experts

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Moneycontrol Bureau

Though January wholesale inflation has slowed down to a two-month low of 6.55% (MoM), experts do not see the central bank to cut rates in its credit policy review in March. Some economists feel that inflation is still not at a comfortable level that the Reserve Bank of India will cut rates in March.

In an interview to CNBC-TV18, Abheek Baruah, Chief Economist, HDFC Bank said, "March is too early for either for inflation information flow or for the internalizations. So they will have to wait till April to cut rates. They are considerably worried about growth and I think they are committed to reducing the policy rate over the year. The extent of reduction or the quantum of reduction is really the issue."

However, Baruah also feels there might be some cut in the cash reserve ratio (CRR) to address tight liquidity concerns. He explained that it is important to make a distinction between the two instruments- the CRR and the repo rate cut. "With this inflation number and the concerns that they have expressed particularly the amount of liquidity that has been sucked out through the intervention operations. I think there is scope for another CRR cut perhaps in March which just offsets the intervention impact on liquidity," he elaborated.

The central bank had a 20-month tightening cycle that ended in October.
Headline inflation slowed to its lowest level in more than two years in January as food prices fell, increasing the pressure on the central bank to cut rates to battle the country's economic slowdown.

Agrees Indranil Pan, Chief Economist, Kotak Mahindra Bank tha inflation is still definitely not at the comfortable level. Pan points out that the RBI is watching out the fiscal issue to address tight liquidity situation.

Talking on the 10-year bond yield which is at 8.18, Pan is expecting an open market operation (OMO) in this week itself.

"The bottom for the ten year could be around 8.15. Once the budget is announced which is unlikely to provide too much of a comfort on the borrowing programme overall and you cannot expect the RBI to continue doing OMOs at every auction, there could be an uptick in the ten year. So my belief is that by the end of March we could be in a range of 8.15-8.30 on the ten year, nothing better than that," Pan elaborates.

Nasrin Sultana

nasrin.sultana@network18online.com