Don’t believe RBI behind the curve in terms of rates: Keki Mistry

Reserve Bank of India is not ‘behind the curve’ in terms of interest rates and may raise the repo rate twice or thrice this year, HDFC Vice-Chairman and Chief Executive Officer Keki Mistry said on Friday. Mistry said it is important for the country to maintain growth in the economy as it will lead to job creation, improvement in income levels and increase in consumption, he said.

“I truly don’t believe that we are behind the curve in terms of (interest) rates. I believe that there would be rate hikes during the course of the year … two or three rate hikes are very much possible. But I don’t see it impacting the economy,” Mistry said at the Times Network India Economic Conclave.

In the monetary policy announced earlier this month, RBI left the repo rate unchanged at 4 per cent. It decided to remain accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.

Retail inflation as measured by the consumer price index (CPI) accelerated to a 17-month high of 6.95 per cent in March, much above the RBI’s upper tolerance level of 6 per cent.

Mistry said one should not compare India’s inflation with that of the US, which is seeing inflation above 8.5 per cent. In March this year, the US Federal Reserve raised interest rates by 25 basis points (bps) and signalled six more rate hikes this year to contain inflation.

He said historically the US had extremely low inflation and India had high inflation with a gap of close to 400 basis points. However, today inflation in the US is over 8.5 per cent whereas India is expecting inflation to be at 5.7 per cent in the next year.

“So, we are 2.8 per cent lower than the US. Obviously, the US which is never used to having inflation has to take extremely drastic measures in terms of increasing interest rates.

“I certainly don’t see the need for India to do what the US Fed is talking of doing and being so sharp in the terms of rate hikes,” Mistry said.

He said oil, which was USD 75 a barrel, is today at USD 107 a barrel, but is not going to be USD 107 barrel for the full year.

“So, if you assume that oil settles at USD 90 or 95 a barrel, on an average, for the year, we are looking at inflation coming down in the course of the time,” he added.

Mistry said the speed at which the Indian economy has bounced backed has been truly fantastic. He credited the government and the RBI for the way they have handled the whole crisis. He said due to the huge demographic dividend, the consumption in the country has been strong and continuous to remain strong.

On the real estate, Keki said it was a very very good time for the sector due to improving affordability levels despite surge in the property prices.

He said the penetration level of the mortgages in the country is one of the lowest in the world.

The total outstanding housing loans in India, as a percentage of GDP, is less than 11 per cent. This compares with the 60-70 per cent in the US and the UK, he said.

“So there is so much of under penetration in the mortgage market that structurally the demand will remain strong,” Keki added.

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