MUMBAI: The Reserve Bank of India (RBI) is unlikely to aggressively defend rupee despite its recent sharp depreciation, according to Axis Bank CEO Amitabh Chaudhry.
“I think they will play it slow. We can’t continue to spend such a huge amount of our reserves on just defending the rupee,” Chaudhry said during a Bloomberg Television interview at Davos on Monday. He also painted a challenging outlook for the Indian economy, citing tough macroeconomic conditions.
The rupee, which was one of Asia’s best-performing currencies earlier, has seen a dramatic reversal, falling to a record low of 86 against the dollar last week. It continues to trade below that level.
Adding to the concerns, India is grappling with a slowing economy and weak urban consumption. Government estimates suggest the economy will grow at 6.4 per cent this fiscal year, marking a four-year low.
Impact of rate cuts downplayed
Chaudhry expressed skepticism about the government introducing major fiscal support measures in the upcoming budget, citing a focus on fiscal deficit reduction. He also downplayed the potential impact of rate cuts on economic growth, instead advocating for increased liquidity and higher credit growth.
“Liquidity needs to be infused into the system, and credit growth must be allowed to pick up,” he noted.
Chaudhry highlighted the role of internal reforms in addressing economic challenges, even as global factors like a potential US-China trade conflict under the Donald Trump administration add to uncertainties.
On Axis Bank’s outlook, Chaudhry said deposit growth is unlikely to improve significantly unless liquidity conditions ease. The bank’s shares have declined to their lowest level since November 2023, following higher slippages and credit costs in the December quarter and subdued deposit growth.
Despite signs of stabilisation in asset quality across the banking sector, Chaudhry advised caution. “The macro environment remains uncertain, so we have to stay watchful,” he said.
