|
The Reserve Bank of India (RBI) should avoid raising interest rates in its upcoming Monetary Policy Committee (MPC) review as higher borrowing costs during the festive season could hurt consumer spending and corporate borrowing, Debopam Chaudhuri, Chief Economist at Piramal Group, said.
Speaking exclusively to ANI News in Mumbai on Monday, Chaudhuri said a rate hike at this stage could increase the burden of equated monthly instalments (EMIs) for consumers and weaken discretionary spending during an important period for demand. "In the middle of the festive period, if EMI burdens increase for consumers, demand for discretionary spending... might slow down," he stated. "I hope there is no interest rate hike in this meeting, as this is a crucial festive period." The caution comes as private capital expenditure and domestic consumption have shown signs of revival. Chaudhuri said that after a sluggish previous year, economic activity in the first quarter revived, with private capital expenditure joining public expenditure. "This momentum should continue unless capital becomes very expensive or restricted for some reason," he added. He also said GST rationalisation and festive demand are expected to provide further support to GDP growth, making continued access to capital important for sustaining the recovery. Beyond near-term growth, Chaudhuri identified job creation for India's young population as the biggest structural challenge facing the economy over the next three to five years. "With almost one out of every five young individuals currently lacking a good quality job, this is a serious problem," Chaudhuri said. "If this youth demographic is not absorbed into productive, meaningful jobs over the next 3 to 5 years, it will manifest into much larger socio-economic issues." On banking liquidity, Chaudhuri addressed concerns around the monetisation of USD 127 billion in FCNR(B) deposits entering the financial system. He said banks are expected to deploy the liquidity into productive credit channels without compromising underwriting standards. "With better risk-mitigation technology and improved underwriting principles at both NBFCs and banks, institutions will be reasonable when deploying this cash," Chaudhuri noted. The liquidity entering the banking system could therefore support productive credit, provided lending institutions maintain their risk assessment and underwriting standards. On external risks, Chaudhuri said crude oil prices breaching USD 90 per barrel could create severe pressure for domestic Oil Marketing Companies (OMCs) and the rupee. With India's purchase basket touching USD 110 to USD 111 per barrel amid geopolitical tensions, he said the RBI would need to remain attentive to volatility in the USD/INR pair. "At these levels, the RBI will become cognizant of volatility in the USD/INR pair and take appropriate steps to curb excessive fluctuations, while letting the exchange rate level remain market-driven," he observed. Chaudhuri's comments come against the backdrop of multiple factors shaping India's growth outlook, including domestic consumption, private investment, liquidity conditions and elevated crude prices. Looking ahead, he expressed optimism about maintaining India's growth trajectory, provided access to capital remains unhindered and consumer demand remains well-supported through policy stability. (ANI)
|
