Indranil Pan, chief economist, Kotak Mahindra Bank expects a 25-bps rate cut in February RBI policy and sees an overall 75-bps cut in interest rates in 2015.
There was some cheer on the industrial output front with the index reading for November coming in at a five-month high of 3.8 percent, compared to a contraction of 4.2 percent in October. Even the consumer inflation for December stood at was 5 percent as against 4.38 percent M-o-M, but below the estimates.
Pan expects global situation to remain volatile and feels that it would be difficultfor the government to meet fiscal deficit target of 4.1 percent of GDP if divestment target is not met.
Below is the transcript of Indranil Pan’s interview with Ekta Batra and Anuj Singhal on CNBC-TV18.Ekta: Post the Index of Industrial production (IIP) and Consumer Price Index (CPI) data, what is your expectation from the RBI? When could they move on rates and how early and by how much?A: It’s still a difficult call for the Reserve Bank Governor but from an analytical perspective we were actually looking at whether this number comes in, the CPI comes in lower than the predicted fan chart of the RBI. Now remember the RBI governor had been very openly saying that if the inflation trajectory is lower than what is being expected by him and his analytical support, then there is a bigger room for him to actually come and reduce rates. So that is what has happened but in the same bit he has also sort of mentioned about the fiscal issues and we all know that the fiscal deficit is close to 99 percent of the year projected number and unless the revenue side picks up specially in terms of the disinvestments, they could be serious problems in terms of meeting the fiscal targets. It’s still a very mixed scenario for the RBI governor but after having seen yesterday’s data, we have actually brought forward a much bigger chance of a rate cut in February. We were initially looking at a period of February to March, immediately post the Budget for the rate cut. Now there is a relatively larger or greater than 50 percent probability that the rate cut is done in February rather than the Governor waiting till March.
Ekta: And, what would be the quantum of that?A: I would say it is still 25 basis points. I don’t think there is a 50 basis points on the card simply because the global situation continues to be volatile. The deflationary trend in the globe does not really allow the European economies to actually come out of the debt issues. We all know about the Greek political situation and we really don’t know what ramifications it would have in terms of a Greek exit or anything of that sort. So, the risk perspective from the global scenario and the contagion hit for the emerging markets would still continually play on his mind and prevent him from doing a relatively larger dose of 50 basis. So I would stick with the 25 basis points at every cut.
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