Expect another 0.50% rate cut within the next 3-4 months: AM Naik, L&T

ET Now caught up with AM Naik, L&T, for his views on RBI's latest interest rate cut. Excerpts:

ET Now: Are you not surprised with the timing of RBI's interest rate cut?

AM Naik: The timing may be a bit of a surprise, but overall the rate cut is not surprising. It was already too late for a cut. About six weeks ago, I had said that instead of 0.25-0.25% cuts, the RBI should reduce rates by 1% since inflation had come under complete control.

Since then, the RBI has cut rates by 0.5% in all. I still maintain that 1% reduction is what is badly required for the growth of the country.

ET Now: What could have changed for the RBI governor to take this decision outside of a policy?

AM Naik: The RBI and the government work more in tandem now. RBI Governor Rajan has also seen in the Budget that the government desires growth and that needs more liquidity.

So, instead of waiting for the policy, he has perhaps gone in for this rate cut. I hope on April 7 — the policy day — Rajan goes in for another 0.25% rate cut.

ET Now: Chief Economic Advisor Subramanian said this rate cut was essentially what the economy needed. Now with two rate cuts already having come and presumbaly a third one coming, do you think the rate sensitive cycle — or the economic cycle which badly needs lower rates — will start to pick up?

AM Naik: It will start to pick up because a lot depends on the interest rate, particularly in consumption goods area like cars, auto and housing. Those are the areas where you have an EMI to pay.

Currently the EMI is too high; so many people cannot buy. In these areas, growth will pick up on across-the-board interest rate cuts.

I am sure many infrastructure projects will also turn viable post the rate cut. But remember, a 0.50% cut is not enough for many infrastructure projects, because they are long-gestation ones. So I expect another 0.50% to come within the next three-four months.