Economic growth remains to be a big concern for the Reserve Bank of India, as well as the government, said B Prasanna, Head of Global Markets Group at ICICI Bank.

Prasanna's comments came after the data released on Thursday indicated that the retail inflation accelerated in July to 6.93 percent due to a sharp spike in food and vegetable prices. This limits the room for further monetary action.

Speaking to CNBC-TV18 on the retail inflation numbers, Prasanna said, "People did expect some kind of a duration demand management from Reserve Bank of India (RBI) which did not come through. Now with this inflation reading, even rate cut expectation seems to be taking a back seat."

Prasanna, however, said he still expects a 25-basis point rate cut in the February policy. "Our view for Q4 this financial year is still for average inflation in the region of 4-4.4 percent. So I would assume that that will be the quarter when RBI has an opportunity to cut rates,” he said.

However, Prasanna does not expect a change in liquidity stance by RBI. “I do not think the RBI is going to touch on the liquidity. In fact for them also they will be relieved that they will be able to achieve a lot of reduction in bond yields through the liquidity route rather than through a rate cut route,” he said.

“I think whatever said and done, growth is still a big concern in the minds of policymakers... The government, as well as the RBI, and I am sure the liquidity will be kept surplus going forward,” he added.

According to Prasanna, the market needs demand-side measures from RBI. “The market desperately needs a demand-side management measure. Unless RBI comes out with held-to-maturity (HTM) hikes and open market operations (OMO) announcements, I think the bond yields are going to be slowly creeping up. As we speak the yields are already at 5.94-5.95 percent and if we don’t see RBI coming out with some kind of OMO announcement or an operation twist today or tomorrow, we would probably see the new 10-year also crossing 6 percent,” he said.

On the dividend, Prasanna said, “We expect around Rs 70,000 crore of dividend to be paid out that adds to the liquidity.”

First Published:Aug 14, 2020 2:07 PM IST