Outcomes key to RBI rupee lock; ball in govt court: Experts

To offer a 360-degree view on the RBI's credit policy, a panel of experts comprising Pratip Chaudhuri, chairman, SBI, Sajjid Chinoy, economist, JPMorgan, Saumitra Chaudhuri, member, PMEAC and Planning Commission and Girish Nadkarani of Avendis Capital, in a discussion on CNBC-TV18, concur on the RBI's decision to withdraw measures to contain depreciation in the rupee, in a calibrated manner.

Also Read: RBI Credit Policy: Leaves key rates unchanged, reflects no hawkish stance

While Sajjid Chinoy points out that the withdrawal will be based on outcomes, Saumitra Chaudhuri adds that the government is looking at options to impose duties on goods that add to the widening of the current account deficit such as gold, oil and iron ore.

Below is an edited transcript of the discussion on CNBC-TV18

Though the RBI governor has not stated when the  measures to contain the depreciation in the rupee,  SBI's Pratip Chaudhuri says though the central bank has not set a deadline by when the measures would be withdrawn, he endorses the RBI’s decision to remove the measures in a calibrated manner. “Though the repo rate has been increased by 300 bps — from 7.25 to 10.25 — banks have not raised their lending rates because banks’ deposit costs are not so much a function of short-term money market rates except for those banks who have a large reliance on CDs. As SBI is a lender in the CD market, the returns will be higher as the CDs mature."

Providing an estimate on the probable withdrawal of RBI’s liquidity measures,JPMorgan's Sajjid Chinoy says that the decision to withdraw will be based on outcomes. "It is clear that the RBI is buying the government time to solve more fundamental problems such as the worsening balance of payments (BoP) gap, widening current account deficit (CAD) or drying up of capital inflows."

The market reacted positively when the monetary policy was announced and then in the afternoon, there was a sharp reversal. On what could have spooked the market, Girish Nadkarani of Avendis Capital explains, "The markets have been falling on fairly thin volumes and a certain amount of tiredness has been creeping into the equity markets. The sharp fall in the later part of the trading session had nothing to do with the RBI and was on expected lines."

Nadkarni adds, "The fact that bond yields went down from 8.13 to 8.03 is evidence that the economy is in for a fairly soft interest rate regime over the longer-term. In the short term, obviously because of volatility in the rupee, there will be spikes in interest rates. But over the long term, interest rates will be soft and benign. And I think the markets will bounce back."

While the government has ensured that it will look at measures to reduce CAD, India Inc has suggested a few measures such as the hiking of import duties on certain kinds of consumer goods to limit any increase in the CAD.

On whether the government will consider any of these suggestions, Saumitra Chaudhuri says, "I don’t think these are options are viable. Add to this, there are limits on the goods on which the government can hike duties on. For instance, electronic goods under the 1998 IT Act that we signed prevents us from imposing basic customs duties on a whole host of electronic goods.The issue at hand is the duties that must be imposed to limit imports on gold, oil and iron ore."