It’s a momentous change on the liquidity front & RBI was responsive to it
RBI has delivered a rate cut. How does it affect lending rates?
Once liquidity eases there will be some transmission for borrowers. This allows the liquidity framework to be an important adjunct to the monetary policy stance. We could expect one or two more rate cuts for the rest of the year but it’s hard to say because there are variables like monsoon, food prices, inflation and external factors like the US Fed’s stance. But the sense we have is that we are in an accommodative stance. It’s a momentous change on the liquidity front and RBI has been responsive to it.
There are many new liquidity measures in this policy? How crucial will they be?
Liquidity is crucial because we have a deficit of .₹ 1,50,000 crore. Once government spending starts, we will see easing in liquidity which should take a couple of months. The government has .₹ 1,00,000 crore of balances with RBI. Earlier trends show that from April we’ll see some spending.
What are the big factors to watch out for this fiscal?
One thing which I would keep an eye on is the capital situation of banks, the March-end impairment number and the whole impact of liquidity easing. We should also watch out for how the payment banks get their act together this year. A lot of banks have given a sense on where their numbers are but it could be in excess of the guidance which may have different implications on the capital requirements especially for public sector banks.