Amitabh Chaudhry, CEO of Axis Bank Ltd. says the Indian central bank is unlikely to take strong action in defending the rupee despite its sharp depreciation.
“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,” Amitabh Chaudhry said in a Bloomberg Television interview at Davos on Monday. The executive also provided a pessimistic outlook on the Indian economy, stating that the macroeconomic situation "appears challenging."
In just a few weeks, the rupee has shifted from being one of Asia's top-performing currencies to one of the region's worst performers. Last week, it dropped below 86 against the dollar, reaching a new low, and has remained below that level since.
Simultaneously, the country is caught in a worsening slowdown, with urban consumption on the slide. New government data suggests that the economy is set to grow this year at 6.4 per cent, which would be the lowest in four years.
Chaudhry noted that most probably no huge fiscal supportive measures are being expected from the Indian upcoming annual budget area to be presented next month, as the government continues to give greater importance on fiscal deficit reduction. He also believes that rate cuts will have little impact on the growth trajectory.
“But you need to infuse liquidity into the system,” he said. “You need to allow for a slightly higher credit growth.”
He mentioned that while global events, such as a possible US-China trade war under a Donald Trump administration, could affect growth, the responsibility will lie with policymakers to implement reforms that can drive economic growth. “Many issues need to be addressed internally in India,” he added.
Speaking about the performance outlook for Axis Bank, Chaudhry said that he does not expect a marked shift in deposit growth unless liquidity returns to the system. The bank's shares are trading at the lowest since November 2023 after the earnings reports came out with higher slippages and credit costs for the quarter ended December 31, along with deposit growth that was not very robust.
He stated that asset quality in the banking sector "is stabilizing and should hopefully improve from here." However, he added, "You must remain cautious, as the macroeconomic outlook appears uncertain."
