- Why is interest rate transmission slow?
- When will interest rate cycle turn?
Sajeet Manghat in conversation with #SBI chairman Dinesh Khara. #NDTVProfitLive #RBIPolicy
- When will interest rate cycle turn?
Sajeet Manghat in conversation with #SBI chairman Dinesh Khara. #NDTVProfitLive #RBIPolicy
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TVTranscript
00:00 I met up with Neeraj Gambhir, Anupati Sahai and Kamal Kodi who is the CEO of City Union
00:05 Bank and KK Ministry to discuss the entire policy and its ramifications.
00:11 Neeraj, I will start with you first.
00:16 Are you surprised?
00:18 No change in policy, no change in stance and no major announcements on managing liquidity
00:24 either.
00:25 What did you make of these comments?
00:27 What line you think or there's a little bit of surprise because while they talked about
00:31 managing liquidity, they've largely said that they've been doing it and they're nimble-footed
00:34 and will do what it takes when it takes.
00:39 Thanks for having me on the show.
00:40 I think it's broadly on the expected lines, both on growth and inflation.
00:45 In fact, I was a little bit positively surprised by the sort of assurance or in some senses
00:53 the confidence that the IBI governor has on 7% growth for next year.
00:58 Our own estimates are for a little lower, say about 6.5%.
01:02 Nevertheless, it still continues to be another or it will most likely be another year of
01:06 very strong economic growth and hence the sort of, I would say, reflection on the fact
01:14 as to how fast you need to adjust rates.
01:17 On liquidity, yes, we have seen Reserve Bank pretty active in the markets.
01:21 We have seen over the last week itself, multiple repo and reverse repo options being done to
01:26 make sure that the system liquidity stays.
01:28 What the governor has said is not a new information.
01:32 We all know that there is a very large government balance that sits there, which is causing
01:37 this frictional liquidity in the banking system.
01:39 The challenge is that this frictional liquidity shortage in the banking system is causing
01:43 the short-term rates to actually spike up quite sharply.
01:46 We have seen three-month CD rates go up to as high as 7.8% and that is obviously impacting
01:52 the cost of funds for the banks.
01:53 So I think I am hoping that with this renewed set of assurances that the governor has given,
01:59 there will be some cooling off of these short-term rates.
02:02 I think he pointed out towards the fact that there has been some volatility in the short-term
02:05 money market rates.
02:06 So I think that is the key thing.
02:08 If the overnight rates settle towards 6.5% and the short-term money market rates start
02:12 cooling down, then I think this policy would have achieved what we would have liked to
02:17 see in the policy.
02:18 Mr. Kamagodi, did no change in stance surprise you or are you in sync with what Neeraj Gambhir
02:25 just mentioned?
02:26 Just to add to what Mr. Gambhir said, you also heard a statement which clearly states
02:33 that probably from the earlier policy announcements and all, you had more discussion on the Arjuna
02:42 Sai on the inflation.
02:44 And now it has been clearly spelled out that the economy will be now getting ready for
02:51 the growth and all sorts of other actions will start and all.
02:56 So it is definitely a little bit, we are positively surprised that it is probably happening two
03:03 months earlier.
03:04 Probably we were expecting this in the next policy.
03:08 But the support for growth will be more from where we are now.
03:14 That's a positive point here.
03:17 All other rates and all are on the expected line.
03:21 Neeraj, I know while we are focusing on a whole bunch of global cues and the FISC and
03:27 the budget and the market borrowing, but the fact still remains that we have and we should
03:35 be taking a cue from what the Federal Reserve does.
03:38 The fact that that market rate cut expectation has now been pushed forward, do you feel like
03:44 until the Fed moves, the RBI, even if conditions are conducive, will be unable to move because
03:50 the rate differential is very critical for an emerging market like ours?
03:53 Yes, it is.
03:56 And hence what the Fed does is also of quite a bit importance.
04:02 Rate cut expectations in US have been pushed back by at least six months.
04:06 I think the market was hoping to have it in the first quarter in March policy.
04:12 Now we are looking at May, June and even probably later, given the recent speed of data that
04:17 we've seen in US.
04:18 So yes, that does make the bar for a rate cut to move higher in India particularly.
04:26 And also the fact that our growth continues to be strong.
04:30 The task on inflation front is still not complete.
04:33 We are likely to see an inflation outcome for this fiscal and the next fiscal, which
04:37 is going to be higher than the target of 4%, basically means that Reserve Bank has no real
04:43 hurry or a reason to cut rates anytime soon.
04:46 And I think both of these factors need to be taken into account simultaneously.
04:51 Neeraj, that brings me to the next question, which is a little bit of a conundrum in my
04:54 head at least.
04:56 So co-inflation has been easing in line with what the Governor or the RBI would like, recorded
05:02 at 3.8%.
05:04 The fact remains that if it continues to fall and gets closer to 2%, this becomes bad for
05:09 the economy.
05:10 On the other hand, and of course because of that the headline inflation has also cooled
05:14 off, but vegetable inflation continues to be a sore point.
05:18 Non-vegetable inflation has also been going up over the last four years.
05:21 So what do you think in your opinion needs to be done to tackle inflation in that sense?
05:28 And the only thing the RBI can really tackle is core inflation, but we don't want that
05:31 to fall off too easily, right?
05:35 But at the same time, if the headline inflation continues to stay high and volatile, and remember
05:41 food is a large part of India's consumption basket, so can't ignore it that easily.
05:47 And if the food prices continue to stay volatile, it affects people's expectations about the
05:52 future inflation.
05:53 And hence, it is not very easy for a central bank like India where headline inflation is
05:59 the target to start cutting rates when the overall inflation or the headline inflation
06:05 is much beyond the target.
06:06 So I think the Reserve Bank can take comfort from the fact that the core inflation is low
06:11 and hence it is not a situation of overheating in the economy, it is more of a supply side
06:17 issue in the vegetable and food basket and products, but cannot really start cutting
06:22 rates till such time the overall headline inflation starts pulling off trends.
06:27 By the way, just take a quick detour and mark risk assets by and large before we get in
06:33 Anubhati Sahay in the conversation as well.
06:36 The Nifty, the Bank Nifty, both are off.
06:38 I mean, we have seen the PSU banks come off because there was a bit of a rally, but let's
06:42 just mark the markets about not too much, but a bit lower, but the banks and the PSU
06:47 banks in particular would be the ones.
06:49 The Bank Nifty is in the green, but the PSU banks have certainly come off, so that is
06:53 to be kept in mind.
06:54 The PSU bank index actually by and large okay, a few banks have certainly come off.
06:58 Anubhati Sahay of Standard Chartered Bank joins us right now on the show as well.
07:02 Anubhati, good having you, thanks for joining in.
07:04 Anything surprised you?
07:05 I mean, one reference being made to external shocks in a meaningful way, particularly the
07:10 debt that the developed world stands in and how that is a source of potential future shocks.
07:16 Yeah, sure.
07:18 I think there were two points which were of great interest.
07:22 One, for the first time we have seen a dissenter emerging and probably voting for a cut.
07:28 This we have not seen in our senses while there was just one vote in this particular
07:33 meet.
07:34 As we move further into 2024 and probably by June of 2024, we are likely to see six
07:40 out of six votes in favor of a cut.
07:43 A fair bit of caution today, well justified where the world stands today with the tensions
07:48 in Middle East and especially with the data surprising on the higher side in the US economy
07:53 and probably rate cuts been deferred there.
07:55 So fair bit of cautiousness, which was a surprise, but the dissent for a cut was an equal surprise
08:04 to us.
08:06 Otherwise broader on the policy decision, more or less in line with expectation.
08:13 On your point about public debt to GDP, I think it's a very important point which the
08:16 governor brought to the attention of the market.
08:20 If we talk about the global level, there is a very high level of public debt while it
08:25 can be managed without impacting the markets a lot, especially if we look at the developed
08:30 markets.
08:32 It becomes a constraining factor for a lot of emerging economies, including India.
08:37 And in case of India, while we all have applauded the budget, I think the public debt to GDP
08:42 is something which is a factor on the minds of policy makers and to a great extent there
08:48 is a great deal of focus to bring it down as soon as possible to ensure that the issue
08:55 with the rating agencies about high public debt to GDP gets addressed sooner rather than
09:00 later.
09:01 Mr. Kamakoti, small things, but he mentioned about how two or three very important moves
09:07 taken at the end of, virtually at the end of the policy, including allowing resident
09:13 entities to hedge price of gold, extending KFS requirements for all retail and MSME loans
09:18 because it's mandated earlier only for certain class of lenders.
09:22 Any thoughts on those three or four announcements that were made?
09:25 Yeah, particularly on the, I mean, key factor statement is there for some time, but including
09:34 all charges with the interest rate, let's say we have to think over that and probably
09:40 some amount of selling on the GST will also be there because if it is included in the
09:46 interest rate, if it is a charge, you have GST over and above that.
09:52 And if it is included in the interest, you don't have the GST part on that.
09:59 Some amount of, let's say, thoughts should be put over there to take it forward, but
10:04 it will be definitely, let's say, beneficial to the customers and overall transparency
10:10 will be getting better and better.
10:12 Right.
10:13 We also have with us KK Mistry, former VC and CEO of HDFC Bank joining in.
10:18 Hi, Mr. Mistry, thank you very much for taking the time to talk to us this morning.
10:23 No surprises on policy, not too much of a change in the tone or the stance, more or
10:29 less on expected lines or would you have expected or liked a slight change in stance, commentary
10:35 maybe?
10:36 He hasn't even said much on liquidity in that case.
10:41 I don't think I would have expected too much of a change given the fact that the external
10:46 environment continues to remain uncertain.
10:48 Like you've seen that, you know, you have three wars going on, two wars going on and
10:54 one near war going on.
10:55 You have this Gaza issue, you have the Ukraine-Russia issue, you have this, you know, conflict between
11:02 the US and Iran.
11:03 So in that kind of an environment, things can be very uncertain.
11:08 You could have a sudden change in oil prices, sudden change in sentiment.
11:12 So given all of that, I think RBI will continue to be watchful.
11:15 My sense is by the time we come to, let's say, May or so, around May, RBI will get a
11:21 better fix on where they expect the monsoons to be and whether we expect a normal monsoon
11:26 and therefore normal, you know, agricultural output and then maybe act in terms of lowering
11:33 interest rates.
11:34 But I still believe that a bunch of macro environment staples civilizes and if we, you
11:40 know, we don't have any surprises on the monsoon front, we could look at a rate cut coming
11:44 sometime in May, maybe even in May June.
11:47 Mr. Mistry, good morning.
11:49 Niraj here.
11:50 Just wondering, did the confidence of the Reserve Bank of India on growth surprise you
11:55 precisely for the reasons that you mentioned with the conflicts going in and world growth
11:59 slightly looking dodgy, a 7% number that the Reserve Bank has said.
12:03 Did that surprise you?
12:04 No, not at all.
12:06 If you ask me, if you ask me personally and I've said this before also, in my view, a
12:11 growth may even be slightly higher than 7%.
12:15 You know, we are not that much dependent on global factors as the rest of the world in
12:19 the sense that the economy is largely domestic economy and as long as we are creating jobs,
12:25 there are people are, you know, people have jobs, they have income, they are spending
12:29 money, consumption is there, manufacturers are incentivized to produce more because they
12:34 are producing more, they're hiring more people.
12:36 So the economy is on a roll and there's a multiplier effect to these things.
12:40 So I'm not at all surprised.
12:41 In fact, I would believe in my opinion that we would end up with a number higher than
12:46 7%.
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