In an interview with ET Now, Ananth Narayan, Regional Head, Fixed Income, Currencies & Commodities, South Asia, Standard Chartered Bank , gives his views on the credit policy . Excerpts:
ET Now: The majority of the market was expecting the governor to raise the repo rate by just a quarter percentage point, but he has actually gone ahead and raised it by half a percentage point. How would you read into that action?
Ananth Narayan : This action is clearly unequivocally hawkish, no questions asked. The market was divided between either the RBI raising by 50 and stopping there or raising by 25 basis points and then maybe taking some action on things like the savings account rate, a differential rate for borrowing, the 1% extra NDTL from the SLR and so on and so forth. What the RBI has done has done all of this together. Now you cannot get more hawkish and unequivocal than this. The reaction, therefore, has been immediate. We have seen yields jump up on the swap curve as well as in the government bonds by 7-8 basis point straightaway and the trend will likely continue given the clear nature of the message coming from the RBI.
ET Now: Should we then assume that 50 basis point hike that we have just seen happened is not going to be the end of the rate hike cycle and that we will continue to see rates hikes going forward, maybe another one in July even?
Ananth Narayan : I am sure we will see some more rate hikes going through. I do not think we have stopped here at all.
ET Now: Should we expect that the RBI will somewhere take a pause after this rate hike and maybe the next rate hike will only come in the next quarterly review and not in the mid-quarter review?
Ananth Narayan : I would be surprised if that happened, to be honest. I would expect the rate hike to come through in the next 45 days as well. The reason why we had a 50 basis point rate hike today as opposed to the normal calibrated 25 basis points was the fact that our inflation estimates were so off over the last few months really right from the beginning of the year. The policy statement also essentially turns what was a growth versus inflation debate to a pure inflation debate by simply stating that inflation eventually impacts growth. So by that token, what was seen as earlier a choice between growth and inflation, as far as the RBI is concerned, they are very clear that they want to tackle inflation and in terms of cost of funds to be honest, the fact that savings rates have also been increased by 50 basis points will have a significant bearing on the way the end customer who takes a loan sees the rate as because that is a significant portion of the bank's liabilities and the direction of this particular move, a 50 basis points hike right now and the possibility and discussion around deregulation eventually does not really augur well for eventual rates to the customer. So to answer your question, rate hikes will continue in the next 45 days as well as oil prices are where they are and the uncertainties remain and possibly the end customer rates go up as well.
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