I compliment the RBI for laying out the concerns: Shanti Ekambaram, Kotak Mahindra Bank

Shanti Ekambaram, President - Corporate & Investment Banking, Kotak Mahindra Bank Ltd, in an interview with ET Now, gives her reaction on the RBI's policy decision. Excerpts:





ET Now: Were you surprised by no rate action or were you on the camp of the unanimous people that believed that this time around it was likely to be a non-event?

Shanti Ekambaram: No, I was a part of the camp which believed that there was no interest rate cut going to happen, so it was not a surprise.

ET Now: Were you perhaps hoping that this time around there would have been a little bit of tinkering with the CRR?

Shanti Ekambaram: No. If you see the run up maybe the last 1-1.5 months, liquidity has been reasonably comfortable in the system and hence I was not necessarily expecting a CRR cut. Moreover, RBI has used other tools that are available to it from time to time through OMOs to infuse liquidity to the system. So I guess there was no so much of an expectation on liquidity as much on the rates. If you look from a rate perspective from the last policy to now, very little has changed from RBI’s perspective in terms of any move on the fiscal side. If any, the view on inflation and the outlook on inflation has actually become worse since the last policy. For all the reasons that the Governor has outlined in his policy, inflation is looking much stickier than what it did three months ago and that is the reason why there is no change in rate. They have actually increased their view or rather their outlook on inflation from now to March as against the contrary. So given the sticky inflation situation, there was no expectation of a rate hike. Given the lack of any action on the fiscal side either in terms of a diesel price hike, further passing off of some of the costs of coal, electricity etc., there was not much expectation of any interest rate hike at least on my part.
ET Now: You were in the camp that expected today to be a non-event but apart from the rates front, what would you have ideally liked to see the RBI do?

Shanti Ekambaram: Frankly, RBI has said and done what it should do. Actually I am complimenting the central bank in announcing what it said, the laying out the concern. If you ask me, for really stimulating growth for action on the ground, all roads lead to the centre which is the government. We have to ensure that there is movement in at the ground level. For one reason or the other, execution of investments put out by so many people in the last 3 years have either not come to fruition or have come up but are not operational because of lack of linkages whether it be gas or coal or any other matter.

We are living in an extremely volatile global environment. If we want India to come back on track, we have to provide positive sentiments to boost growth. Ideally if you ask me at a time like this, the government should be spending on infrastructure, government should be laying out investments that will boost the economy but unfortunately the government has very little headroom given the fiscal situation and the fiscal slippages that have happened. In absence of that, they should really be laying the ground out for investments whether it is local or global to say here we are, here we will help you and this is how we need to do something. So the central bank can only do so much and the central bank has done what it has. They said clearly it is going to target inflation management. It will provide the necessarily liquidity for the growth as well as it will support sustainable medium term growth. So my expectation from the central bank has been exactly what it has delivered. All roads lead to the centre. ET Now: Going back to the tone of today’s policy document put out by the RBI, would you scale down your expectations in terms of the remainder of rate cuts that you are expecting for the rest of the financial year?

Shanti Ekambaram: Unless you see significant sustainable change to the trajectory of inflation, unless you see some fiscal policy action on behalf of the centre, I do not think you are going to get any rate reduction unless there are any global shocks to the system. So if there are any global shocks to the system and there needs to be liquidity pumped in, rates have to, that may be a different situation. If it is business as usual and normally, we have to see sustainable trajectory of reduction in inflation. It is looking quite to the contrary now. As it stands today, it looks difficult to me as to why the central bank would reduce interest rates. If there are a series of steps that are taken say in the next 1 to 2 months’ timeframe on the fiscal side and which sort of eases the situation a bit and perhaps provides room for inflation to come down, you could see some action.