The Reserve Bank may not automatically cut rates in its monetary policy review this month end in the wake of 75 basis points reduction in key rates by the US central bank, a top Indian banker said on Wednesday.
"Though there may not be a rise in rates, the Fed cut in the US does not mean that rates should automatically go down in India or that India should follow the Fed's cue," State Bank of India Chairman O P Bhatt told reporters in Mumbai.
RBI will have to take into consideration other factors as well when deciding on its policy rates, Bhatt said. "The factors here are different than those in the US. These factors have to be examined and I am sure that the authorities concerned will examine these factors and based on the result will decide whether the rate should be reduced or left untouched," Bhatt said.
If a status quo is maintained on the rates, "it will be a positive signal," he said. The US Federal Reserve yesterday cut key interest rates -- Fed funds rate and discount rate -- by 75 basis points, biggest in more than last two decades, to avoid recession in the US economy.
On the recession in the US economy and its likely impact on India, the SBI Chairman said growth in the Indian economy has taken place largely driven by domestic factors and only a small percentage was based on external factors like exports.
"That is the resilience of the Indian economy," Bhatt said. Besides, recession in the US may prompt American companies to outsource their activities, which may come to India. "So there may be more business activities in India," he said.
On the current market volatility, Bhatt said it has nothing to do with the fundamentals of the economy. "Therefore, India is not in trouble," he said, adding that "all sectors are performing well". There is enough liquidity in the system as well, he said.
According to him, volatility was confined only to the stock market.
On SBI's rights issue, he said it would go through successfully. "We have priced it at a 35 per cent discount at Rs 1,600... people will stand in queue to buy this issue," he said. The current volatility in the stock market would not affect the rights issue, he said.
On the pricing of its rights issue, Bhatt said there were two reasons "why we have priced it at this level. We wanted to make sure that in case of any volatility in the market, there will be a significant discount which will attract the investors."
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