Today all eyes will be on the RBI monetary policy and the decision on rate cut by the Monetary Policy Committee (MPC). Street will also keenly watch out for their growth estimates going forward.

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Abheek Barua, chief economist at HDFC Bank and Jayesh Mehta, MD & country treasurer at Bank of America spoke about their expectations from the MPC in an interview with CNBC-TV18.

Barua said, “My sense is that they will do 25 basis points cut now and keep some room for doing another cut going forward. A lot of people are talking about 15 bps cut assuming that 4.75 level that the repo rate reached post great financial crisis is some kind of bottom – that is not necessarily the case." According to him, they will pace it out a little, do 25 bps today and 25 bps later, he added.

However, with the growth numbers turning out the way they did, a larger cut cannot entirely be ruled out but the probability is low, said Barua. He further added that they would be keenly looking for steps or commentary on getting credit moving.

“I understand that the credit guarantee that the government had offered in the budget for pooled assets is still not operational. There could be more radical steps -- for the RBI to do some open market operations, a better rated NBFC paper. These are the things that could make a difference because just keeping liquidity abundant and cutting rates does not seem to be doing the trick. We have a liquidity problem and liquidity trap issue and unless we address that this is a bit of a non-event,” said Barua.

On the growth trajectory, Barua said they expect MPC to set FY20 GDP growth target of 5-5.5 percent.

Mehta is of the view that both 25 bps and 50 bps cut will have an impact on the short-end of the curve. “The curve currently, if both things happen, would steepen and that’s mainly because the market is not convinced about the fiscal deficit and therefore, the extra supply and how that will be managed,” he added.

“Therefore, from that perspective we are in a different trajectory. To add to that – one has to get quick clarity on what’s happening on the supply side and also whether you get clarity or not, how is it going to be managed. Is the RBI going to support that because I hear a lot of people talking about buying assets etc., but much easier than that is to support and monetize fiscal deficit,” added Mehta.

They expect the MPC to cut repo rate by 50 bps today and GDP growth forecast to be cut possibly to 5.5 percent, said Mehta.

According to him, it will be an eventful policy if RBI cuts repo rate by 40-50 bps.

First Published:Dec 5, 2019 9:18 AM IST