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    First rate cut by RBI unlikely before Feb 2013: Sujan Hajra, Anand Rathi

    Synopsis

    RBI will maintain monetary easing stance, but this will play out more through the liquidity channel rather than through the interest rate channel, says Hajra.

    In an interview with ET Now, Sujan Hajra, Co-Head, Research & Chief Economist, Institutional Equities, Anand Rathi, talks about the upcoming RBI policy and rate cut. Excerpts:

    ET Now: We have got RBI policy coming up at the end of the month. The market seems divided in terms of what the expectations are, though those expectations for a rate cut did get tempered down a little based on yesterday’s inflation numbers. What are you expecting from the RBI on the 30th?

    Sujan Hajra: We have consistently maintained that the RBI will maintain monetary easing stance, but this will play out more through the liquidity channel rather than through the interest rate channel. Obviously there are some expectations particularly because of the sound bytes coming from New Delhi that there could be a rate cut. Obviously a rate cut cannot be ruled out, but our sense is that given the level of inflation, more likely there will be a CRR cut, maybe a 25 bps CRR cut rather than a rate cut. Our sense is that if you go by the inflation logic, the first rate cut is unlikely to come before February 2013.

    ET Now: Speaking of inflation, what do you make of the reading that came in yesterday and do you believe that RBI’s language is going to continue to focus on inflation rather than growth?

    Sujan Hajra: The RBI obviously is focussing on both fronts as of now, but if you see starting from January 2012, RBI is doing a gradual easing whether it is through CRR cut, SLR cut and once in April by rate cut too. So our sense is that since inflation is likely to go up because of the diesel price hike and the second round impact of diesel price hike, the inflation is likely to top out somewhere close to 8.5 by December. So till that time, it will be extremely difficult for the RBI to push for a rate cut despite the fact that the growth has softened very significantly over the last 6 months.

    ET Now: So by March end, do you believe the inflation will be at 7.5% as the RBI has forecast?

    Sujan Hajra: The RBI has actually talked about a 7% inflation by March and my sense is that by March end, it will be closer to 7% and in fact by April, it should be closer to 6%.

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