RBI May Lower Interest Rates Before End Of Fiscal Year: Kotak Official
The Reserve Bank of India (RBI) may cut interest rates only towards the end of the financial year despite moderating inflation, Kotak Mahindra Bank's treasury chief said.
“Inflation has come down, but the core is not coming down that much. Some of it is a base effect which they already knew, and they did not hike at the same pace compared to Fed,” said Rajeev Mohan, president, of treasury and global markets.
“The RBI may hold on for a longer period and maybe towards the end of this fiscal, the RBI may go for a rate cut.”
The RBI hiked its key policy rate by 250 basis points (bps) in the previous financial year, but surprised markets with a pause in April, going against expectations of a 25 bps hike.
India's retail inflation dropped to an 18-month low of 4.7 per cent in April, with the May reading easing further to around 4.2 per cent.
The central bank is mandated to bring down inflation to 4 per cent over the medium term but holds it in a 2 to 6 per cent range at all times. Retail inflation, however, stayed above 6 per cent for most of last year.
Rupee under pressure
Mohan said that he expects the rupee to touch its previous record low but stay within that, while the scope for appreciation remains limited with the RBI looking to build reserves.
The rupee hit its record low of 83.29 to the dollar in October last year and was last trading at 82.72.
Speaking about the impact of Russian money lying with Indian banks being converted, Mohan reckons that the additional dollar demand would be transient.
“While there are no confirmed reports per se, I believe the oil for the rupee has not played out the way it should have. If the Russian money starts going out, there will be an additional demand for dollars, but it would be transient,” he said.
