RBI move to lower short-term rates; see repo hike: HDFC Bk

The Reserve Bank (RBI) on Monday reduced the marginal standing facility (MSF) by 50 basis points (bps). Ashish Parthasarthy, head treasurer of HDFC Bank expects a fall in short-term rates by almost 50 basis points in the near-term. The reaction will be in all tenures and government securities (G-Secs) across the curve, he tells CNBC-TV18.

He expects the apex bank to hike repo rates going forward. Obviously, one will wait and see inflation numbers and take a call, Parthasarthy adds. Also read: RBI eases liquidity, cuts MSF rate by 50 bps to 9% Below is the edited transcript of his interview to CNBC-TV18. Q: By how much will the short term rates fall tomorrow? A: The immediate overnight rates will fall by 50 bps and you could see a reasonably good reaction in all the short-term rates; in CDs and CPs of a similar magnitude. Q: When you say short-term, would you think only three-six month fall or can you see the rate falling all the way up to one year? A: You will have some reaction in all the tenures without doubt and not just one year. We would also have reactions on G-Secs across the curve. At the longer end, it will be lower than 50 bps, at the shorter end you would see a reduction of around 50 bps. Q: What is the next move of the RBI? Would you say that a repo hike is still very much there in the next policy or would you wait to watch the inflation numbers on Friday and Monday? A: I would broadly agree with that. Prior to rupee depreciation, the inflation trajectory what was being expected, and now there has been a significant difference that it is going to be much higher. Just to correct for that, there could be a possibility of a repo rate hike. One will have to obviously wait and see the numbers and then take a call. Q: Would you agree that the cap might go? You have raised the liquidity issue prominently. A: As I reiterate the fact that they have come out with 7 and 14 day repos and with some cap there, I will not be totally surprised if the full cap does not go from overnight Liquidity Adjustment Facility (LAF). Q: You will be surprised if it didn't go? A: Didn't go fully. It would be increased from the 0.5 percent of NDTL. Q: But would it remain? A: There would be some cap. That is possibly the intention. Otherwise just getting 7 and 14 day repo and placed with a full availability of LAF on overnight then that 7 and 14 may become infructuous going down the line.