We may see a quarter with sub five per cent GDP growth: Saugata Bhattacharya

Interview with Senior Vice -President, Business & Economy Research, Axis Bank

Saugata Bhattacharya, Senior Vice -President, Business & Economy Research, Axis Bank talks to Jinsy Mathew on the Central Bank's policy stance and the road ahead for the economy. Edited excerptes:


How do you read the RBI announcement today?

The RBI continues to remain cautious with inflation being the priority. Also, the Central Bank is waiting for all the announcements over the past few days to materialize on the ground which will help bring the fiscal deficit under control. Hence, I think the RBI is not going ahead with aggressive rate cut measures. However, RBI has not ruled out a policy easing if inflation comes under manageable levels in the future.

We had several CRR cuts through the year but the RBI seems reluctant to go ahead with a rate cut. How do you read that?

The CRR cuts through the year were clearly a means to support the liquidity structure in the system without pushing the inflation factor. Also, a rate cut in the current scenario will mean that the bottom-line of the banks would have been affected considerably. What one has to look for is that even after all these CRR cuts we still have Rs one lakh crore liquidity deficit. Hence banks couldn’t pass on any credible gains so far. With this CRR cut we may see the home and auto loans segments passing some of the benefits to the common man.

Do you see the GDP growth numbers falling close to 5% even as the RBI has set a revised target of 5.8%?

It is quite possible that we may see a quarter with sub 5% GDP growth. However, broadly our estimate is between 5.4-5.6% and going forward for FY14 we are projecting between 6-6.5%. I would say the RBI was realistic in revising the numbers downwards.

With the CRR cut today, do you see the RBI delaying the Open Market Operations?

On the Open Market Operations front it was disappointing today as there was no mention about it in the RBI announcement. With today’s cut, banks have sufficient liquidity and also the SLR buffer already exists. We will see RBI starting with OMOs once the FII inflows ease which have already started showing some signs over the past one month that would see some liquidity tightening.