See cautious RBI guidance; 25 bps repo rate cut: HDFC Bank

While a 25 basis points rate cut maybe a given today, the Reserve Bank (RBI) may give out a cautious guidance based on global factors and the probability of inflation rising on the back of monsoon deficit, says Abheek Barua, chief economist at HDFC Bank. However, the likelihood of further rate cuts has declined, he says. He does not see the RBI lowering SLR today.

According to him, the emphasis is shifting towards consumption through OROP and the 7th Pay Commission from investment as a sort of a dominant macroeconomic strategy going forward. At the same time, financial savings may not pick-up if inflation rises and real rates fall. "Let's not forget, we have had a problem with the flow of financial savings into the sytem just a couple of years back," he says.

Barua says as far as the non-performing loans (NPLs) scenario is concerned, it continues to remain critical. He believes going ahead credit demand is likely to remain weak. But on the brighter side, he expects to see more transmission going forward.Also, he adds there is pressure on emerging markets from the point of capital inflows. "In such a scenario, do you cut rates and hope that signals of growth will get capital back in or do you go by the textbook defence of holding rates," he wonders. According to him, these are some of issues that have no clear answers and will affect the RBI's way of thinking.

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