Bankers want RBI to focus more on growth in Tuesday's review

Ahead of the Reserve Bank's monetary policy review on Tuesday, bankers today said the central bank should focus more on growth as the country cannot afford economic expansion of below 5 per cent.

"The RBI could give a signal because it does not want growth to come below 5 per cent," HDFC Bank Managing Director Aditya Puri said.

Attributing the marginal spike in September inflation to the diesel price hike, he said: "Yes, inflation has been high, but about 30 basis points of that is due to fuel price increase, so the actual number is only about 7.5 per cent. I am hoping for the best."

Axis Bank MD & CEO Shikha Sharma said after the recent reforms which have a bearing on fiscal consolidation, the time has come for RBI to shift its focus towards growth by effecting at least a 0.5 per cent cut in cash reserve ratio (CRR).

"While monetary policy needs to focus both on inflation and growth, given the recent fiscal measures, I think the leaning of policy right now needs to be on growth," she said.

"We just can't afford to have growth being stopped below 5 per cent. Therefore, I would see CRR cut by 0.5 per cent," she added.

Oriental Bank of Commerce's CMD S L Bansal is expecting a 0.25 per cent reduction in short-term lending or the repo rate as liquidity is comfortable now.

The Reserve Bank's second quarter monetary policy review is scheduled for October 30.
State Bank of India Chairman Pratip Chadhuri said high interest rates are impacting employment generation and hence the need to lower rates for jobs creation.

"I think in their policy making, the RBI should also take into account the employment numbers because now so many other countries have taken. Every country takes very serious note of the employment numbers," he said.

Economic growth in the first quarter of the current fiscal had fallen to nine-year low of 5.5 per cent. The growth in factory output in August was also not encouraging as the Index of Industrial Production (IIP) expanded by a nominal 2.7 per cent only.

RBI in its monetary policy have been maintaining that bringing down inflation is its priority. It last cut the repo rate in its annual policy by 0.5 per cent, a reduction after a gap of three years.

Meanwhile, costlier diesel fuelled inflation to 10-month high of 7.81 per cent in September.

StanChart senior economist Anubhuti Sahay said she sees a 0.25 per cent reduction in CRR but is against tweaking the policy rates now given inflationary pressures on the economy.

Analysts said while RBI continuously fought inflation with 13 successive rate hikes till October 2011, the last rate hike was exactly a year ago.

Since then, the cash reserve ratio-- the mandatory amount of cash deposits banks need to keep with RBI-- and Statutory Liquidity ratio (SLR) have been cut by 1.50 and 1 per cent, respectively.

The repo or short-term lending rate at present is 8 per cent, while CRR is 4.50 per cent.
RBI has also injected liquidity through open market operations worth over Rs 2.1 lakh crore apart from cutting the policy rates by 0.5 per cent in March this year.

Rating agency ICRA also expects a 0.25-0.5 per cent cut in the CRR and leaving the lending rates unchanged.

"In light of the seasonal pick-up in credit demand, RBI may consider a further cut in CRR by 0.25 -0.50 per cent to support economic activity," Icra said in a note. "With headline inflation expected to average 7.5-7.7 per cent, space available for further monetary easing is likely to be limited," it added.

Foreign lender HSBC also said RBI is likely to keep the key interest rates unchanged due to inflationary pressures, but may cut CRR. "Given the slightly better domestic activity readings and lingering upside risks to inflation, RBI is expected to keep the policy rates on hold, although another CRR cut is possible," HSBC said.

Foreign brokerage Morgan Stanley said RBI has little room for immediate rate cuts. "We believe the current macro environment provides little room for immediate rate cuts ... rather, it warrants a delay in policy rate cuts," it said.

Royal Bank of Scotland, in a client survey said, 53 percent of its 120 market participants don't see any rate cut, while 49 percent of them see a 25-50 bps cut in CRR. Only 25 percent see a 25 bps cut in the repo.