Limited room for easing by RBI, no case for rate cut: CS

Moneycontrol Bureau

Brokerage house Credit Suisse feels there is limited room for another rate cut immediately, and hence there is no case for a cut in cash reserve ratio (CRR) as expected by a majority of market particpants.

The Reserve Bank of India will meet for its bi-month monetary policy review on Tuesday, and expectations are that it will keep rates unchanged, but may cut CRR.

"We see CRR as more a monetary policy tool than liquidity management tool. Moreover, while the current liquidity deficit is over 1% of net demand and time liabilities, we think it is more frictional and will likely be addressed by a pick-up in government spending this month and sustained high intervention by RBI," says the Credit Suisse note.

"With increased focus and borrowing from the term repo curve, although the quantum of borrowing remains high, the volatility in the price of borrowings has come down significantly, implying improved transmission to money market rates.  We think even if the pressure on liquidity were to sustain, RBI will prefer to address it with Open Market (OMO) Purchases rather than CRR," the note says.