With the Reserve Bank of India expecting a 10 percent contraction in growth, the natural policy response would be to prioritize growth over inflation, Abheek Barua, Chief Economist at HDFC Bank, said in an interview with CNBCTV18.
He says that a lot of people will fret over the inflationary consequences of pushing for growth, but there was a clear emphasis on the fact that inflation was being caused by supply problems. To get lower inflation, the supply bottlenecks would have to be addressed, he said.
According to Barua, the decision to stay accommodative for the foreseeable future means there was scope for a rate cut when inflation fell below the target level. He is expecting a 50 basis point cut were inflation to behave itself.
Taimur Baig, MD & Chief Economist of DBS Group Research said it was clear from the body language of the Governor and the MPC that if we do not see the inflation go well past 7 percent and show a certain degree of trajectory in the new calendar, then there could be a 25-50 basis point cut in interest rates in the March quarter.
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