RBI measures to stem rupee fall may gradually reverse: ICRA

Economists expect a partial rollback of measures taken by the Reserve Bank (RBI) to stem the rupee’s fall. Aditi Nayar, senior economist at ICRA believes there will be a gradual reversal of all these measures.

Most likely, the average daily cash reserve ratio (CRR) might reverse on Friday, she says to CNBC-TV18 in an interview. She does not expect a change in the marginal standing facility (MSF) on the back of mixed signals from inflation in the past couple of months. Also read: Fed inaction gives RBI room to unwind earlier steps: Nomura Below is the edited transcript of her interview to CNBC-TV18. Q: Will Raghuram Rajan will be as radical as to reverse the July measures altogether or may he act on one or two of them? A: We are expecting a gradual reversal of the measures that were taken since July. We are only expecting maybe one of those to be reversed, most likely the average daily requirement on the Cash Reserve Ratio (CRR). We see other measures to be reversed as we go ahead into the busy season. We are not expecting all of them to be changed overnight. Q: So no change as far as the Marginal Standing Facility (MSF) rate is concerned, as there seems to be consensus on the street that he may in fact move on that? A: If we look at the kind of signals that we have got from the inflation indices in this month, the Wholesale Price Index (WPI) ticked up, although of course that was on account of food price pressures and the Consumer Price Index (CPI) has remained fairly elevated. It has barely moved down from 9.6 to 9.5 percent. So in this kind of a situation we think that a reduction in the MSF would be more of an interest rate signal and perhaps that is something that could be avoided by the Reserve Bank of India (RBI) at this point in time and left for later. Q: A lot of people believe that Raghuram Rajan may in fact pull a rabbit of his hat. There maybe some out of the box ideas that he maybe able to push through. Do you believe there is a possibility of that given the way that he actually started his tenure at RBI? A: There is a possibility of that. We cannot really rule that out. Some of the other things that we are expecting in terms of the tone, perhaps a slightly more dovish tone. Also some guidance on what RBI intends to do about the cash management bills. Perhaps, that is something that they could also indicate tomorrow that scaling down of the amounts or maybe further Open Market Operations (OMO) that could be considered to ease the liquidity situation.