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RBI Monetary Policy: CNBC-TV18's Citizens' MPC unanimously votes for rate cut

Updated : June 05, 2019 04:40 PM IST

All economists in CNBC-TV18's Citizens' MPC unanimously voted for a 25 basis points rate cut. Four of the five members expect the Reserve Bank of India's (RBI) stance to remain 'neutral'.

CNBC-TV18's Citizens' MPC comprises of Sonal Varma, chief India economist, Nomura; Sajjid Chinoy, chief India economist, JPMorgan; Samiran Chakraborty, chief India economist, Citi; Soumya Kanti Ghosh, group CEA, SBI and Pronab Sen, former adviser, Planning Commission.

The RBI's next monetary policy will be announced on June 6. A government has returned with an astounding mandate which means political resources are very high, but the economy has just posted its slowest growth in 20 quarters.

Here's what the experts have to say:

Sonal Varma, chief India economist, Nomura: “The slowdown actually is on anticipated lines and no matter how we slice or dice the data, it is clearly showing a slowdown in the underlying momentum. What it is actually suggesting is that the economy has been hit both by the global shock and also the domestic shock because both private consumption and investment have slowed down. As of now, the numbers for the April as well as the early indications for May are that the growth momentum actually has continued to slow down."

Sajjid Chinoy, chief India economist, JPMorgan: “With core inflation softening, it does two things - one, it kind of re-affirms the MPC that growth momentum is slowed... secondly, it provides comfort that even if there is some mean reversion of food prices, that 4 percent target is protected.”

Samiran Chakraborty, chief India economist, Citi: “Traditionally, MPC has not second-guessed the government on the Budget, so they will probably wait for the actual Budget announcements before taking a firm call on the fiscal. But if we are right on our characterisation that growth has definitely slowed down and inflation risk are not in the horizon, then the basic reason why we track fiscal so closely is to see its impact on inflation. So if you are more or less comfortable that inflation is on track, then you can tolerate a bit of fiscal slippage as long as it is well understood that it is for a temporary period and it will come back on course. I don’t think in the June policy the MPC will be that much worried about fiscal slippage. This is a time to think of more growth, less of fiscal.”

Soumya Kanti Ghosh, group CEA, SBI: “The total currency leakage from the system last year has been Rs 3 lakh crore which actually is a record high and that has been one of the problems... the banks also have to maintain statutory liquidity ratio (SLR) and liquidity coverage ratio (LCR). The banks have to effectively maintain 19 percent SLR plus 3.5 percent because of LCR plus 2 percent margin, so effectively the banks have to hold around 24.5-25 percent in government securities. Until and unless the deposit growth rate peaks up, the banks cannot sustain credit growth."

Pronab Sen, former adviser, Planning Commission: “We have a fairly decent idea as to what is happening to bank liquidity in about a month or so and that is something we need to keep an eye open for. But even if it doesn’t come back in the banking system, we also need to be very clear that there was a liquidity constraint in the cash economy as well. If that liquidity constrained is getting eased, then one should expect to see some growth returning essentially from the cash economy rebounding which will not appear in the gross domestic product (GDP) data in the immediate future..."
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