Lower inflation, good monsoon and demonetisation may lead to a 1 percent rate cut going ahead, according to KV Kamath, Chairman of the New Development Bank. He added that he expects the cut in another 3-6 months.
He also said that demonetisation is likely to impact logistics in immediate-term but as far as unaccounted money is concerned that government’s cash-cleanup act will have a positive impact.
Below is the verbatim transcript of KV Kamath’s interview to Sapna Das on CNBC-TV18.
Q: How do you read the wholesale price index (WPI) numbers and impact on interest rates?
A: I think lowering of inflation that has happened in the system over the last three to six months and which was very visible in the last three months, has led to 70 basis points cut. Second, I would think good monsoon has — you continue with cycle where food prices will be in check and thirdly now you have the demonetisation that is happening which clearly is sucking out liquidity from the system and sucking out a whole lot of things which was probably not productive for the system, should have another positive impact. However, I don’t want to speculate, I will say the combined impact of all this should at least lead to a 1 percent cut in interest rates as we go along.
Q: What is the timeline that you are expecting?
A: We are looking at three months to six months; that is my expectation.
Q: Today the government has announced a major step in terms of the usage of indelible ink for exchange of old currency notes and probably even withdrawals. How do you think this is really going to function?
A: I have not seen it and I have not applied my mind so I don’t think I can comment on this.
Q: You mentioned inflation expected to come down further probably but if you look at the demonetisation drive right and the impact on the roads, a lot of trucks for example are stranded, do you expect this to start hitting the supply of goods at some point in time?
A: Immediate term could be but if you look at the impact of taking out unaccounted money from the system, that will have a positive impact.
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