(Bloomberg) — India’s central bank is unlikely to strongly defend the rupee despite a sharp devaluation of the currency, according to the chief executive of Axis Bank Ltd.
“I think they will play it slow. We cannot spend such a huge amount of our reserves only on protecting the rupee,” Amitabh Choudhary said in a Bloomberg Television interview in Davos on Monday. The executive also offered a bleak assessment of the Indian economy, saying the macroeconomic situation “looks tough.”
In a matter of weeks the rupee has gone from being one of Asia’s best performing currencies to one of the region’s biggest losers. Last week it fell below 86 against the dollar – a new low – and has continued to trade below that mark.
Meanwhile, the country is grappling with a deepening recession and softening urban consumption – the latest government data suggests the economy will expand at a four-year low of 6.4% in the current fiscal year.
Chaudhary said he does not expect major fiscal support measures in India’s annual budget to be presented next month, as the government is committed to reducing the fiscal deficit. He also does not expect that the rate cut will make any significant difference to the growth path.
“But you need to bring liquidity into the system,” he said. “You need to allow a little more credit growth.”
He said while global events such as a potential US-China trade war under the Donald Trump administration could impact growth, the onus would be on policymakers to work on reforms to boost the economy. “A lot of things need to be resolved internally in India,” he said.
Discussing Axis Bank’s performance outlook, Choudhary said he does not expect a “dramatic change” in deposit growth until liquidity comes back into the system. Shares of the lender are trading at their lowest since November 2023 after a steeper decline in earnings and credit costs as well as slower growth in deposits in the quarter ended December 31.
Asset quality in the banking sector is stabilizing and hopefully it will move in the right direction from here, he said. “But yes, you have to be cautious because the macro seems uncertain.”
–With the help of Preeti Singh.
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