RBI not to cut CRR to infuse liquidity: Axis Bank

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » RELATED NEWS Inflation trend to flatten, decline in future: ICICI Secs See better inflation nos early next year: Macquarie Cap Inflation unchanged at 12.14%; experts see it peaking ahead Nifty BSE | NSE 09/02/12 Are Mutual Funds betting on Nifty?

Saugata Bhattacharya, Economist, Axis Bank, believes that inflation is no longer a threat in India. "We will not see a resurgence of inflation, which was expected at one point in time. I am a little worried about food inflation in India, which is a bit diverse from global trends given the forecast for the kharif output, food grain output, and so on."

 

Bhattacharya feels RBI will not reduce CRR to tide over the liquidity problem. "It will try to infuse liquidity into the system to paper over the immediate liquidity problems that banks face on a short-term basis like the rollovers, structural liquidity problem and so on."

 

Here is a verbatim transcript of the exclusive interview with Saugata Bhattacharya on CNBC-TV18. Also watch the accompanying video.

 

Q: Would you say that the sting is all over on inflation?

 

A: The numbers do not seems to be suggesting that it's all over for India although all the indices that you have seen in the world, the global indices the CRB-Reuters indices (Commodity Research Bureau) have consistently shown all manner of sub-indices whether it be metals, food, petrol, oil, crude, everything has come off their peaks from April, June-July and so on. So, sooner or later this has to translate into inflation in India and there is no doubt about that.

 

I remain little worried about food inflation in India, which is a bit diverse from global trends given the forecast for the Kharif output, food grain output and so on. Overall inflation is no longer the threat that you will not see a resurgence of inflation that at which we were expecting it at one point in time.

 

Q: What are you expecting from the Reserve Bank of India on October 24? Would you say a CRR (Cash Reserve Ratio) cut looks possible?

 

A: My feeling is that even now they will use other liquidity management tools, the various special facilities that they have been introduced on the lines of the Fed, higher infusion through the LAF (Liquidity Adjustment Facility) and some other measures if they deem it is suitable. But, they will not reduce the CRR because the liquidity problem is a more widespread problem than just banks and the RBI still remains worried about the high credit growth.

 

So, it will try to infuse liquidity into the system to paper over the immediate liquidity problems that banks face on a short-term basis like the rollovers, structural liquidity problem and so on. But I have a feeling that they will not touch the CRR at this point in time.