Dr Shubhada M. Rao, President and Chief Economist, YES Bank, told Business Line that the RBI has frontloaded the rate cut, what, it seems to be comfortable with at this point in time.
Looking at yesterday’s document she was of the view that the rate cut could be done in a calibrated manner 25 basis points now and 25 basis points later in June.
“We had evinced view that it needs to be frontloaded. To such an extent it has been done,” she said.
On the guidance, she said: “The way I read the message is that from now on, the onus is entirely on the Government on two counts in the very near terms.”
First is to show credible steps for expenditure management. It should show some resolve in passing on the fuel prices. Fuel price adjustment needs to be done upfront.
The second is to revive the investment climate. The cost of funds is clearly is an important ingredient to revive investment.
“I think on these two counts, the RBI has probably nudged the Government now to deliver. At its end, the RBI has delivered a 50 bps by frontloading it, and now the government should seize this opportunity to keep the sentiment buoyant by backing it up with quick decisive steps without too much delay on two fronts,” Dr Rao said.
Future rate cuts
On the future rate cuts, she said: “We could look at another round of 25 bps rate cut. But certainly not in the near term.”
A large part of that rate action would be contingent on how the Government would deliver, and in an early time span.
Early steps of resolution will be watched and contingent on that some comfort would come back for RBI, she added.