Credit Policy: How do economists view it?

Credit Policy: How do economists view it?

Abheek Baruah, Chief Economist at HDFC Bank said banks can now reprice lending and deposit rates after the RBI policy announcement, in which the RBI kept all rates unchanged this time, reports CNBC-TV18.

He said, "One of the explanations I have for the relative stickiness of deposit and hence lending rates has been the uncertainty premium that banks have been willing to pay to guard against the very severe liquidity tightening that we saw in the last two years around January and February. So with the kind of clarity that has come from the policy where the RBI is not likely to tighten further, perhaps banks could take advantage of this and reprice both lending and deposit rates."

He also said that they are certainly making a transition from hawkishness to neutrality. He said banks may assume there are no more shocks, and RBI's stance as dovish.

He said the benchmark yeild at 7.5% may rise a little and the "OIS (Overnight Index Swap) which is where the yields have gown down a little more sharply will move up again more sharply than the government bond market. But I think some more hardening is left."

"I think growth hasn’t slowed drastically enough to completely offset inflation worries and I think across the world, the Fed and perhaps the Bank of England being an exception, most Central Banks seem to emphasise inflation concerns rather than concerns about slowing growth. This could change if the US indeed plunges into recession and there are ripple effects across the world and from the second half, the global macro economic environment might just turnout to be considerably more dismal than now and the balance between growth and inflation could change. As of now, the tilt is towards inflation among most Central Banks but this could change going forward and I would think that the second half of this calendar year might just look very different," he surmises.
 
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