RBI unlikely to cut rates tomorrow: Experts

In an interview to CNBC-TV18, Taimur Baig, chief economist, India, global markets research, Deutsche Bank AG and Mohan Shenoi, president-group treasury & global markets, Kotak Mahindra Bank say, they don't expect any rate action tomorrow.

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Below is the edited transcript of the interview with CNBC-TV18's Gautam Broker and Ekta Batra.

Q: Consensus clearly expects no clear action. What do you expect from the commentary in terms of gross domestic product (GDP), inflation and some kind of an indication on forward guidance?

Baig: There are two broad things. One would be the commentary of the central bank on what it sees the economy doing at this moment, what has happened with inflation, what are the key risks that the central bank sees both on the upside and downside. Related to that issue is the guidance for the quarters and year ahead. This is one of the bigger policy meetings and the statement would be a lengthier one.

The RBI will have the space to go in details about what are the conditions necessary for it to start considering easing measures. How much inflation would have to go down, what type of stability of prices do they expect to see, what sort of pass through risks do they see, given that rupee has depreciated substantially in the past six months or so? We would be looking for all of those things.

Q: From the Deutsche Bank, what exactly are you expecting in tomorrow’s policy possibly on the repo as well as on the CRR? In your personal opinion, what do you think the RBI is possibly going to do going forward as well?

Baig: We are joining the herd; we are expecting nothing tomorrow, nothing on the liquidity side, nothing on the rate side. Going forward, I think that RBI would be cautious to point out a couple of things. One is that liquidity has reached some sort of a comfort level, as far as Central Bank is concerned. The corporate India might think liquidity is tight, but as far as Central Bank is concerned, LAF (Liquidity Adjustment Facility) at 1% of net demand and time liabilities (NDTL) is good enough. Unless there is some spike in seasonal demand for liquidity, I think this is where the RBI would like to forecast liquidity to be going forward.

Q: Do you expect the RBI to actually cut its growth forecast? They mentioned about 7.3% in the April meet, interim, they didn’t mention anything. Do you see that being revised downwards and likewise for inflation any tweaking to the number you expect?

Baig: On the inflation side, I think it is going to be a little more challenging than the growth side. I think it is pretty easy to come up with a 7% or below 7% growth forecast for FY12-13. The RBI can give a series of explanations, for example, US growth has come down lower than what we had thought likely even three-four months ago. We have continued stagnation in Europe. Given that India has now about a quarter percent of its total GDP relying on exports, clearly that is a downside. So, there will be reasons to cut that. But, on the price side, I really can't see how the RBI can come up with different forecast, 7-7.5% inflation seems to be the par.