The Hindu Business Line : RBI may not be done with yet, say economists

Thiruvananthapuram, Jan. 3 Unforeseen liquidity pressure and an as-yet unyielding consumer price index (CPI) inflation would have a say on whether another round of monetary easing becomes warranted before the turn of the fiscal, say leading economists.

Dr Subhada Rao, Chief Economist, Yes Bank, told Business Line that pressure on prices of food has not eased as rapidly as that on fuel.

One can very clearly see that it’s the latter that has forced the remarkable unwinding of the wholesale price inflation (WPI) spiral in recent times.

But this only bares into full view the mischief potential of the untamed monster of CPI inflation, which is of immediate relevance to the man on the street.

In this context, “we still have some room left” for another round of easing by the Central Bank, said Dr Rao.

Some steam would be taken out of the housing and the auto sector under the larger umbrella of the sector-specific lowering of rates.

Liquidity position

In the view of Mr Abheek Barua, Chief Economist, HDFC Bank, the liquidity position is comfortable as of now. “But we are still not out of the woods.”

In case there’s a run on liquidity, it is likely that the Reserve Bank might go in for a 50 bps cut in CRR before the fiscal year ends.

In this context, the next three weeks would be watched for crucial monetary data. FII fund flow would also be another major parameter to look out for.

According to Dr Dharmakirti Joshi, Director and Principal Economist at rating agency Crisil, resetting policy rates from now would hardly have any impact on the growth rate since it works only with a lag.

In this context, the latest RBI estimate on growth would be watched with some interest.

Property prices

Negative exports and IIP data would give the impression that the anticipated bottoming out has not happened.

For instance, the latest National Housing Bank data on housing prices suggest that property prices have more than tripled during 2001-08.

This clearly shows that a correction is overdue in this sector, Dr Joshi added.

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