Khara said the Monetary Policy Committee’s decision to maintain a neutral stance—even after raising GDP forecasts and lowering inflation projections—signals the central bank’s intent to assess longer-term macro trends before shifting to an accommodative stance. “Maybe another quarter or two,” he said, when asked when a stance change could come.
Growth momentum strong, but watch for global headwinds
Khara acknowledged the strong GDP print but cautioned that year-on-year growth may moderate in the coming quarter. He added that global uncertainties will play a crucial role in shaping India’s growth trajectory.
“Global headwinds and how they evolve will give a clearer indication of future stance decisions,” he said.
Liquidity situation comfortable; banks can support credit demand
Khara said the CRR cut and RBI’s clear communication on using short-term and long-term liquidity tools ensure that liquidity will not constrain credit expansion. “RBI has assured that adequate liquidity will be maintained at all times,” he said, adding that this is reassuring for borrowers and banks alike.
Bank margins likely bottomed out
On banking sector profitability, Khara said margins appear to have bottomed out in Q2, supported by disciplined repricing and stable funding conditions.
However, with the credit-deposit ratio nearing 80%, banks may face near-term margin recalibration as deposit composition shifts toward longer-tenure FDs amid expectations of falling rates.
He added that banks will have to rely more on cost control and operational efficiencies to preserve margins, especially as long-term deposits reprice faster than loans.
Outlook
Khara expects stable credit growth, comfortable liquidity, and improving macro indicators to support the broader banking system. He reiterated that transmission will continue and the current rate cut cycle will play a constructive role in boosting economic activity.