High liquidity costs limit rate cut impact: Axis Bank's Mishra

MUMBAI: The cost of liquidity in India is extraordinarily high, reducing the impact of the repo rate cut that has lowered the cost of funds for existing borrowers but not for new investments, according to Neelkanth Mishra, chief economist at Axis Bank. Mishra said India's trend growth rate is 7%, and the country could achieve this for three out of the four quarters in the next fiscal year.

"Seven percent growth is our trend growth. We get 1% from labour input, 2% from total factor productivity, and 4% from capital formation. The arithmetic is very clear," he said. Mishra was speaking at an Axis Bank press conference.

Mishra noted that while there are headwinds to growth, the relevance of global growth for India has been shrinking over the past decade. He highlighted positive trends, such as the rise of global capability centers and the use of foundational AI models to create business use cases, as significant opportunities for the country.

"If liquidity conditions improve, I'm confident that even if we don't average 7% growth in Q1FY26, the growth in subsequent quarters will be of that magnitude," Mishra said.