 "Sunil Kaushal")
The reduction in the statutory liquidity ratio (SLR) is a welcome step forward and this will infuse more liquidity in the system and help banks to some extent in meeting the liquidity coverage ratio requirements which comes into play from January next year.
We hope this is the second of the many SLR cuts going forward, which should be in sync with the fiscal consolidation plans of the government. Additionally, the reduction in SLR holdings under held-to-maturity (HTM) should provide liquidity for growth as well.
Inflation has been particularly difficult to predict with several knowns and unknowns and with the possibility of a sub-par monsoon, reduction of rates is not a certainty in the near to medium term. While much has been made of lower interest rates realistically over, say, a period of 12 months, it is difficult to envisage the Reserve Bank of India reducing rates by over 100 basis points (bps). Admittedly, while this would be a positive signal if and when it happens, I am not sure if it's going to be material, especially for the larger corporates.
While the debate around supply-side bottlenecks causing inflation and higher interest rates continue, it would be worthwhile watching for decisive and concrete steps towards reducing the fiscal deficit, which in turn would provide the elbow room for lower government debt issuances and consequently, lower rates for both the government and the corporate sector. This would also facilitate transmission of lower rates in a more sustainable manner.
In summary, I think the strategic route taken is in line with selectively using tools to ease the supply side for growth and stay the course to bring down inflation to six per cent or thereabouts before pulling the demand side levers of growth.
Sunil Kaushal
Regional Chief Executive, India & South Asia, Standard Chartered Bank
