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February 07, 2019 09:41 AM | Economy

Data suggests RBI has every reason to cut rates, says HSBC India

Hitendra Dave, head of global banking and markets of HSBC India on Thursday said that the data suggests that the Reserve Bank of India (RBI) has every reason to cut rates.

The RBI will be announcing the sixth bi-monthly monetary policy statement on Friday. This will be the first policy under Governor Shaktikanta Das. The last three policies have maintained status quo on the repo rate.

“This is a fairly rapid change in the monetary policy conditions or at least the challenges before the monetary policy committee (MPC) from the time in October where I guess the debate was not whether they would hike but by how much and the question was whether they would go for 50 or not and from then to October where the debate was whether they would undertake a stance reversal from calibrated tightening to be neutral to where we are today where clearly there is data which suggests that they have every reason to cut if they want to," he said.

“Given that we have had three more months of data, given that February also appears to be relatively moderate on the food price front and oil appears to have stabilised around USD 60 per barrel, currency seems to have stabilised, there is a lot of talk about what the US Federal Reserve is seeing which is making them indicate a long pause, ECB possibly once again looking at challenging growth conditions, China slowdown. So I think the conditions are absolutely ripe. Then it will just be a question of which way the MPC wants to lean, wait for more data or bite the bullet right now,” he added.

“What I would watch for is – there have been developments in credit markets and there is a certain section of the market, which is effectively no longer able to access funding markets at all or the cost of accessing that funding is quite high. There are second order effects of that freeze, which we are seeing in certain asset classes and certain markets. So whether there is any discussion around that – it is not an MPC issue but at a RBI level it is definitely an issue. Whether that has any impact on their thinking vis-à-vis liquidity, that would be one part I would look out for,” Dave mentioned.
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