HDFC chairman Deepak Parekh says that one should be prepared for another quarter percent hike in the next couple of months. He feels that the RBI is justified in hiking the repo and reverse repo rate adding that the main fear is inflation.
Excerpts from CNBC-TV18's exclusive interview with Deepak Parekh:
We have had a couple of mixed reactions; bankers are saying they weren't quite expecting this?
I personally think the RBI is justified in increasing the repo and reverse repo rate. It was unexpected, sure the market players were not expecting it at this time, at this juncture, but if you notice the happenings across the world this week, particularly emerging markets, then most central banks have increased rates.
The main fear is inflation. In India, inflation is going up but we are not really paying the right price for oil. If the oil price increases are passed on to the public, then the inflation would come to double-digit figures because everything could get impacted. Government of India is subsidising everyone on crude.
I think the rate hike is following the global trend, following the trend that is happening in the emerging markets and I do not think a quarter percent hike in short term rates will impact home loan rates. No home loan company borrows short-term money, they borrow medium-term and long-term.
Do you think home loan rates or for that matter PLRs, corporate loan rates might go up in the next couple of months reading this signal?
I don't think we should look at it that way and I think its just caution. The RBI is telling people that you have to be careful; inflation is going up, which is a cause of worry. We don't want to get back to the 90s when inflation was in double digits, because that will slow down economic growth and a host of other issues come with high inflation, particularly in a poor country like ours.
It's more cautionary, it's more warning. It is only short-term rates. So I don't think that we should really worry too much about it that all rates are going to go up next month. We have to see what the governor does in July, but I personally feel as I've said earlier that he was justified in doing this, seeing what's happening around the world.
But with leading bankers like you saying that it is unlikely to be passed on do you think markets will take heart from that and the blow will not be so strong?
I think the blow has already happened in the last 3-4 sessions and there has been a blood bath in India and everywhere, including developed markets like the US. See what has happened in Turkey and there the rates were increased 1.75 per cent overnight just to contain inflation, because most central bankers are fearing the old '90s when inflation was really very high and in mid double digits.
Home loan rates have already gone up in the past few months by about one to one and half percentage point? Have you seen any slowdown in the pace of growth of home loans and if the rate hike happens once again in July or if it is passed on, do you think there could be a further slowing?
I think the slowdown has not really happened for the actual users. The slowdown may have happened where people were investing money in real estate but for end users, for people who stay in their own apartment, I don't see a slowdown in our business at all. For the first two months we have grown at 30 per cent and there has been no slowdown from our side.
What do you think is going to be the frequency of further rate hikes and do you think we could expect one when the Credit Policy review comes in July?
It is not for me to say this, but I think we should be prepared for a quarter percent in the next couple of months.
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