Rate-Cut Cycle Unlikely to Begin Soon Unless Liquidity Improves

The sluggish deposit growth poses a risk to achieving higher economic growth, says Rajiv Anand, deputy managing director, Axis Bank. In an interview with Sachin Kumar, Anand speaks of the challenges facing the banking sector, including declining credit growth, stress in unsecured loans and tight liquidity. Excerpts:

- Sachin Kumar

Several tools to address this, but global factors are adding to the challenge. For example, a strong US dollar and rising US interest rates are pulling funds out of emerging markets, creating additional liquidity pressure in India. The RBI is currently battling with rupee volatility, liquidity shortages, and inflation. This situation is complex, and I think 2025 could be a year of heightened volatility. Given these challenges, banks need to focus on managing liquidity and risk effectively in the near term.

When do you expect the RBI to start lowering rates?

A rate-cut cycle is unlikely to begin soon unless liquidity improves, as tight liquidity would hinder effective rate transmission. The RBI's immediate focus is on improving the market's durable liquidity position. We are not very hopeful of a rate-cut cycle starting anytime soon, and even if it does, we believe that it is probably going to be very shallow where we get at best 50-bps cut in the current cycle.