Possibility of Fed rate hike, inflation fear may have kept RBI from cutting rates: Keki Mistry

In a chat with ET Now, Keki Mistry, VC & CEO, HDFC, says RBI may just be storing the rate cut ammunition up their sleeve and planning to use it some other day. Edited excerpts

Are you surprised the rates have been left unchanged?

To be honest, I am a little surprised because I would have certainly expected a 25 bps cut and maybe even a 50 bps cut. But I think what the RBI may have kept in mind maybe a couple of things. One is they would have a much better view on what is happening on the inflationary front than what we have. And number two, they would also take into account the fact that Fed will almost certainly increase rates now in December and then when Fed is increasing rates, we would be reducing rates which could put some pressure on the currency and which could then have an inflationary effect. These are the couple of things they keep in mind but I still think that they have room to cut rates in the next policy.

That is right and they have not ruled that out. They are saying that policy continues to remain accommodative, right now there are challenges on growth and they are also saying that there is some risk to inflation tilting to the upside, projecting CPI at 5% for Q4?

One way to look at it is if RBI has some ammunition to do a 50 bps cut in rate, getting the rate cut done may not necessarily have resulted in anything. So they may just be storing that ammunition up their sleeve and planning to use it on some other day.

Why would they do a rate cut? You cut rates either if you believe that it is going to push consumption forward because people will borrow more money and then use that for consumption or you believe that rate cut will facilitate investments. The way I see it is that the capacity utilisation in India still has not gone to the levels one would like to see before you see a large big thrust on investments.

In that sense, cutting rates now may not have helped. This fact coupled with the fact that Fed is going to increase rates and maybe even inflationary pressures are foreseen, may have kept them away from cutting rates.