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    Hello and welcome to the webchat with Indranil Pan, Group Chief Economist at IDFC Bank on RBI Monetary Policy review


    Hello and welcome!

  • S


    Does holding of rates by RBI helping to curb inflation and does lowering of rates by RBI giving momentum to growth of economy? I think neither of these is happening. Growth of economy is always co-existent with moderate level of inflation. However, inflation in India, mainly food inflation per se, has got chronic problems, while lies in supply bottle necks in the form of hoarders. Holding of high rates is not gonna bring down inflationary pressure. On the other side, lowering of rate by RBI is not even yielding to growth momentum, as availing of funds from bank has more to do with easing with "red tapping" criteria of banks to sanction loan and less to do with interest rated. Getting sanctioned loan from private sector bank or co-operative banks or Micro Finance Institutions takes much less time than their peer public sector banks. However, that does not mean that public sector banks are apathetic in growing advance portfolio. But the reason is lack of flexibility or relaxations that Public Sector Banks faces compared to private counter parts. So, it requires, all round holistic and well focused approach to get the economy out current state of turmoil. What your take sir, about observations I made?


    The key issue, I think that you are hinting at is the transmission mechanism. With the banks moving to marginal cost of funding from April 1st, 2016 we think the transmission of rates will be much better. This is likely to help banks. Further, banks will be able to reduce stress from their balance sheet as the power sector loans are converted into bonds. Finally, we do not expect private sector investments to start off immediately. However, lowering of interest rates could lead to higher consumption in the economy, real estate sector could see better days and hence generate employment and finally leading to a higher growth. This is a self-fulfilling prophecy and cannot happen over a very short period. The problems are even more biting as global growth is slow and the external demand is suffering. So, India growth can continue to remain weak for some time and the lower inflation and interest rate will only enable create a stable atmosphere for future growth perspectives.

  • A


    What is your initial take on the RBI's neutral stance at it monetary policy review today?


    To me it continues to be an accommodative stance and the RBI will be ready to reduce rates if it gets better-than-expected comfort from the inflation side.

  • P


    What are the factors which would be a risk to inflation and is the target of 5% retail inflation for March 2017 achievable?


    First, 5% seems achievable, even possibly factoring in the Pay Commission awards. As per our own inflation sheet, end-March 2017 inflation should be at 4.6-4.7% without Pay Commission. But the factors that could support the 5% is monsoons, the currency depreciation to be within reasonable limits. The core inflation however continues to be a bit of a problem unless supply side improves

  • S


    What could be the impact on G-Secs yields in the near term post the RBI's neutral stance?


    G-sec yields had firmed post policy. With liquidity continuing to be relatively on the tighter side, we do not see too much benefit for the bond yields. If the fiscal is on the right track and if the overall FD/GDP ratio is at 3.5%, we think the 10-year can come down to the best case of 7.50%. Broad range by end of FY16 should be 7.50-7.60%.

  • T


    The RBI in its statement as said that the economy has lost momentum in Q3. In this background is the GDP forecast of 7.4% achievable for the current fiscal and 7.6% GDP growth in FY17?


    First, the targets that the RBI has put out is the GVA, rather than the GDP. GVA is supposed to be at 7.4% according to the RBI. We are working with a 7.3% GVA for FY16. Our GVA for FY2017 is currently at 7.6%, but would probably have to bring it down a bit, contextual the fiscal and the push that it can see.

  • T


    The infusion of capital into PSU banks seems to be a never ending story. What could be the fiscal impact as the government has to cough up money to infuse capital in them?


    The fiscal is likely to accommodate the banks to the extent of Rs 25,000 crore as has been pointed out under the Indradhanush. There could be more accommodation if the government has money - but this appears a bit unlikely at the moment.

  • R


    Sir, the RBI has flagged the hardening of interest rates in global markets. What are its implications for us?


    US has only increased the rates. But he points out in the policy that December has been a calm month in the global financial markets - suggesting that normalisation of the US monetary policy was fully anticipated. Importantly, the script for the global markets has now shifted to the China factors and how it is likely to deepen the deflationary pressures and hence lower interest rates globally. Further, US is unlikely to be very aggressive in raising rates, that provides comfort to the EM economies, including India

  • B


    RBI announced easing of rules to facilitate investments in start-ups. How would it help in balance of payments?


    I would not be expecting any huge flows for start-ups immediately. Thus, on the bop side, I do not think it would have any implications in a significant way - specifically if you are asking whether it will lead to any appreciation of the INR

  • S


    By adopting status quo on key rates the RBI seems to have taken a pause for the time being. Will the Union Budget be the referential for future monetary policy actions?


    Union Budget is important - where the RBI would be expecting fiscal consolidation path not to be hampered to favour growth. Conclusively, he points out that he would expect structural reforms to be the key for growth going forward while keeping up to the fiscal consolidation targets. Thus he would want to understand the adjustments in the fiscal - both qualitative and quantitative to go ahead with any further cuts

  • D


    What quantum of rate cuts from RBI do you forsee in the current calendar year 2016?


    we would expect 25 at the min and 50 at the max in the calendar year. First one is for April 2015