RBI steps will hit growth; won't aid rupee: Indiabulls

The recent measures announced by the Reserve Bank of India (RBI) to protect the falling rupee will not only impact growth, but also not help prop-up the rupee on a sustainable basis unless long-term structural imbalances in the system are addressed, Ajit Mittal, Executive Director, Indiabulls Group told CNBC-TV18.

Indiabulls Group has cash on their books, so the impact on its balance sheet would be muted, but corporates with large treasuries, and suprlus cash deployed in fixed money market will surely get impacted, he added. Also read: More liquidity crunch in offing; need no RBI aid: IDFC MF Below is the verbatim transcript of his interview on CNBC-TV18 Q: Could you tell us what the measures that Reserve Bank of India (RBI) came out to shore up the rupee mean to you in terms of how it would impact growth? A: I would say this was a tactical response even if a little heavy ended from RBI to tackle the situation purely from a short-term point of view. To say that growth will not be impacted by these measures is a bit naïve. There is always a trade-off between monetary policy imperative and the growth. RBI could not afford to be seen as a bystander when the rupee was being hammered day in and day out. The point is that unless we address the long-term structural imbalances in the system, I do not understand how these measures alone can prop up the rupee on a sustainable basis. RBI is doing its bit. These measures were expected. RBI has been taking some measures in the forex market, particularly in the derivatives segment. But they could not go on dipping forex reserves because we do not have much. All we have is USD 280 billion which is enough for 6-7 months import bill. So, there had to be some monetary response which RBI was right in taking, but unless they are backed by equally firm and resolute policy response from the government I really doubt whether these measures are going to really have long-term application. Q: Do you think demand for housing looks like getting impacted even further? A: Housing market was one of the markets which was relatively insulated from the recent downturn. It was one of the better performing markets, both from a lender's perspective and also probably from the developers and builders perspective. Right now what corrective steps RBI has taken are more in the short-term money market. So, it is too early to say that RBI has signaled a reversal of the interest rate cycle. If that were to happen probably housing finance companies would also be compelled to revise the rates upwards and probably that would be a setback for the housing sector and also probably for the housing finance companies. However, right now as everybody is saying these are short-term measures and probably a reversal of these steps would be feasible if the rupee stabilises. Then I really do not see much impact on the housing sector. Q: What is the impact that the rupee depreciation will have on corporate balance sheets like yours? A: Corporate balance sheets are definitely going to be impacted. It would be hard to deny the impact of those, particularly corporates which have large treasuries and a good chunk of their surplus cash is deployed in fixed money market instruments then they will definitely take a knock. For our corporate treasury in particular, we are kind of having cash on the balance sheet, but not all of that is required only in the short-term instruments. So the impact if any would be far muted.