RBI may not be comfortable with Centre's small saving collection target: Soumya Kanti Ghosh, SBI
In a chat with ET Now, Soumya Kanti Ghosh, Chief Adviser-Economic Research, State Bank of India says that the RBI is also not comfortable what has been said in the budget in terms of an one lakh crore small saving collection target.
Edited excerpts:
The RBI could have given itself a little more elbow room as far as the bottom of the rate cut is concerned because this seems to be the end of the rate cut cycle for now.
Yes, The current rate cut at 6.25% should not be the end of the rate cycle because there is still some distance where we can move down. But the other thing if you look at it from the point of view of the APEC PAC, there are a lot of uncertainties in the room; the first thing is the timing of the Fed rate hikes, the second is the oil prices, geopolitical tensions. The correct approach what the RBI possibly had tried to do in this policy and if you look very carefully in the policy in the last paragraph, it clearly says that the small saving rates of the banks needs to go down. So that means that the RBI is also not comfortable what has been said in the budget in terms of an one lakh crore small saving collection target. So the idea is to nudge the yields to a higher level so that the yield differential between the US and India is restored so that actually acts as a buffer of more capital inflows into the country. That has been at the back of RBI mind because it is now preparing itself for a possible Fed rate hike in the second half of this year and if that is the case it is always better to be get prepared and not capital flow out of the country because that could put a downward pressure on the exchange rates and hence inflation and hence imported inflation.
Edited excerpts:
The RBI could have given itself a little more elbow room as far as the bottom of the rate cut is concerned because this seems to be the end of the rate cut cycle for now.
Yes, The current rate cut at 6.25% should not be the end of the rate cycle because there is still some distance where we can move down. But the other thing if you look at it from the point of view of the APEC PAC, there are a lot of uncertainties in the room; the first thing is the timing of the Fed rate hikes, the second is the oil prices, geopolitical tensions. The correct approach what the RBI possibly had tried to do in this policy and if you look very carefully in the policy in the last paragraph, it clearly says that the small saving rates of the banks needs to go down. So that means that the RBI is also not comfortable what has been said in the budget in terms of an one lakh crore small saving collection target. So the idea is to nudge the yields to a higher level so that the yield differential between the US and India is restored so that actually acts as a buffer of more capital inflows into the country. That has been at the back of RBI mind because it is now preparing itself for a possible Fed rate hike in the second half of this year and if that is the case it is always better to be get prepared and not capital flow out of the country because that could put a downward pressure on the exchange rates and hence inflation and hence imported inflation.
