Mar­ket would Wel­come over 25-bps Cut

The Economic Times - - Money -

The bank changed its call from a sub­se­quent hold to a fi­nal 25 bps cut later in the year. More­over, about a month ago, the gov­ern­ment re­duced pub­lic small sav­ings in­ter­est rates by 60-130 bps, en­sur­ing such schemes would be aligned with mar­ket rates, a sig­nal for a lower in­ter­est rate regime. Gov­ern­ment bond yields, which stub­bornly re­mained el­e­vated even a month ago, have dipped about 30-35 bps af­ter the Bud­get, fac­tor­ing in a cut of at least 25 bps. Any­thing more would be wel­comed by the mar­ket.

“If RBI in­deed front­loads the rate cut, it will be a pos­i­tive sur­prise for both debt and eq­uity mar­kets,” said Nilesh Shah, CEO of Ko­tak Mahin­dra As­set Man­age­ment Co.

The lack of cash in the sys­tem has meant that trans­mis­sion of rates hasn’t been hap­pen­ing as quickly as RBI would like. Putting a liq­uid­ity frame­work in place could well prompt banks to do that and slash rates to en­cour­age bor­row­ing.

“We ex­pect RBI to ad­dress the is­sues of sys­temic liq­uid­ity,” said SBI chair man Arund­hati Bhat­tacharya in a note. “Cur­rently, the is­sue of high volatil­ity in cur­rency hold­ings of pub­lic (both in the form of cash and jewellery) as well as gov­ern­ment’s cash bal­ances with RBI is lead­ing to volatil­ity in sys­tem liq­uid­ity.” Growth is de­pen­dent on con­sump­tion and pub­lic spend­ing as pri­vate in­vest­ment lags be­hind.

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