RBI may cut rates on June 2: DK Joshi, CRISIL

In a chat with ET Now, DK Joshi, Director & Chief Economist of CRISIL, shares his views on the expected rate cut by the RBI. Excerpts:


ET Now: A lot of people believe that the RBI is behind the curve compared to any of the other central banks. Would you echo the same sentiment? Would you believe that we could see a bit of tinkering with rates on or before June 2?

DK Joshi: We could see a rate cut on June 2, but I don't think that RBI is behind the curve. Given the legacy of inflation in India, they need to be cautious. Also, given the targets they have set for themselves, I think they will have to be very cautious on the interest rate reduction front.

As of today, inflation has surprised them on the downside. If you look at 2014-15, CPI inflation was 6% and what they were expecting initially was around 8%. So, there is a big surprise that came and even in 2015-16, the expectation is that inflation will stay below the 2014-15 levels.

So, there is good news on the inflation front and the WPI is not the favoured index anymore. But that also is pointing towards a very weak demand in the system because inflation has been negative for almost four to five months.

If you piece these things together, you get some support for a rate cut in June. Also, the previous rate cuts have not really filtered into the economy. Only few banks have cut marginally. So the rate cuts have been rather ineffective as far as the economy is concerned.