Even as the ask for a reduction in Reserve Bank of India’s benchmark interest rate is increasing by the day, Amitabh Chaudhry, MD & CEO, Axis Bank thinks otherwise. He is of the view that a rate cut alone isn’t going to spur capex. “I'm not sure, as a banker that reducing the interest rates by 25-50 basis points is really going to spur the economy. It might be a feel good factor, but it may not impact the decisions which people are taking to spur the economy,” he said in an exclusive interview to Moneycontrol. He believes firmly that reducing interest rates may not change the business case in a very significant manner.
“I don't think interest rate cut is going to spur the capex. Interest rates are pretty decent by Indian standards. There are other issues which need to be looked at more closely, rather than interest rate cut,” he explained. What concerns Chaudhry more now than the interest rates is the availability of liquidity in the banking system. RBI’s recent decision to slash cash reserve ratio (CRR) by 50 bps in two tranches may help the situation a bit.
“Liquidity needs to be released in the banking system. RBI did that to some extent in the latest monetary policy announcement,” he alluded, adding that deposit growth needs to come back to spur the credit growth. “RBI rightly has tightened a number of areas on the banking side. In some cases, the tightening has gone to a point maybe where the flow of credit has reduced quite a bit,” he said.
Chaudhry pointed out that deposit growth has slowed down and consequently, credit growth too has slowed down. “You have to balance all of this to ensure that we keep chugging along at the GDP growth rates. Any slowdown in credit growth or in GDP will reflect very quickly in the economy,” he cautioned. He is also very mindful of the rapidly changing macro-economic environment.
“You're literally reacting to it as things are playing out, rather than being able to plan really long term,” he stated while flagging off that volatility is never a good thing. “In the short term, it could be a bit of a negative, but I think over a period of time all of us will learn how to manage this new equation”.
He also pointed out that for the central bank, the other big challenge would be currency management. On Thursday last week, Indian Rupee breached the physiologically important threshold of Rs 85/USD. “All the global currencies have been depreciating against the dollar. We have seen that in India. Hopefully, over time it will settle down,” he said. With reference to the Indian context, Chaudhry believes that the Indian Rupee may remain under pressure to some extent.
“This also means that RBI is now faced with couple of issues. Indian policy makers does not like a rapid depreciation of the currency. They would like it to keep it steady. We have seen RBI intervening in the market to keep a gradual decline, rather than a rapid decline”.
Meanwhile, the US Fed’s decision to lower benchmark rates not more than twice in 2025, is in sync with Axis Bank’s house view, said Chaudhry. “Our economists have been saying it for quite some time that the rising trade deficit and general deficit in the US does not allow them to look at rate cuts. The rapid pace of rate cuts they were talking about is not going to play out."
When asked about his expectations of a rate cut in India, Chaudhry was clear that tackling inflation may remain the priority for RBI. “RBI, by law, is supposed to manage inflation within a certain range. We have not come close to that number”.
Nonetheless, he believes that the world economy at the moment, is driven by what is happening in the US. “People are trying to project what could happen in a Trump regime. What does appear clear is that that they will use tariffs as a weapon to get countries in line,” he said.
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