On expectations of a repo rate hike on October 29, Varadarajan says he would wait for more quantitative easing in terms of repo rate.
Also read: Capital infusion won't help PSU banks; stay away: IDBI Cap
Below is the edited transcript of his interview to CNBC-TV18.
Q: How is life going to become easier tomorrow? Near term borrowing could get substantially cheaper for you if you floated a CD (certificate of deposit) tomorrow?
A: It is sticking to the script which RBI had indicated, but we would see further and further steepening of the curve. They are clearly bringing short term rates lower and steepening of the curve is being worked on.
You are going to have some amount of infusion between 7.5 and 9 percent also to the seven and 14 day repo, which is 0.25 percent of NDTL. Calibration in terms of overall rate for the short end will be lower.
Q: If you are a wholesale borrower, your cost goes down immediately by 0.5 percentage point?
A: I would assume so.
Q: What is your guess of the next step from the RBI? Experts say that the repo hike on October 29 is very much on the cards, though they would want to see the CPI on Friday and WPI coming next Monday. Nevertheless, that hike is there. Between now and October 29, the RBI could act with the same amazing alacrity on either removing quantitative caps or perhaps reducing the MSF further. Would you expect those kinds of steps?
A: What they have done right now is on the repo side. They can continue to increase it rather than increasing the cap under the repo borrowing. So, they have the ability to infuse liquidity at a price. They possibly can work on in it in terms of calibrating till October 29.
Possibly, I would wait for more quantitative easing in terms of repo rate and stuff like that on October 29. Till then, I would think they would use this variable rate repo.
Q: What will that do to overnight rates? After all variable rate repo is slightly new creature for the markets. So, immediately you would think the overnight rate will come down?
A: We will have to first see the repo. Naturally, there would be a bias under 9 percent in overnight rates.
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