AgenciesWhat will RBI do this week? Hold rates? Or will it cut rates? These are the questions asked by bond market investors as the Monetary Policy Committee (MPC) starts its meeting tomorrow. The MPC meeting scheduled between December 2-4.
According to money market analysts, the central bank will have its eyes on important numbers like inflation and earnings. Consumer Price Index (CPI) hit a nearly six-and-a-half-year high of 7.6% in October. The repo rate stands at 4.00%, and reverse repo rate at 3.35%.
Here is what two debt fund managers have to say about the coming policy.
Lakshmi Iyer, President and Chief Investment Officer (Debt) & Head Products, Kotak Mutual Fund
“What should a central banker do when one is seeing rising yet likely-to-cool-off inflation? When you see a good Q2 GDP growth data, yet uncertainty exists with respect to coming quarters. When you need liquidity to provide credit to real sector, yet grapple with not so high credit offtake. These could be the centre point for discussion ahead of the RBI monetary policy. We expect the RBI to be on hold yet another time – and suggest an extended pause as conflicting signals emerge from macro data points. Focus also could be on how much is the desired liquidity to ensure optimum balance between rates and monetary transmission.”
Pankaj Pathak, Fund Manager- Fixed Income, Quantum Mutual Fund:
Given the sticky inflation trend, the RBI will likely keep policy rate unchanged. Economy is recovering at a faster pace than earlier anticipated. But the recovery is still very fragile and it would need an accommodative monetary policy to sustain over the period. The RBI may not be willing to surprise markets negatively. They will continue to look through the recent inflation readings and wait for it to come down over next two three quarters.
It would be crucial to see how the RBI view the current liquidity situation and influx of foreign capital into Indian markets. If forex inflows continue the RBI will be forced to absorb a part of liquidity surplus for slightly longer period.
From bond markets prospective this policy will most likely be an non-event. The RBI will continue to intervene in the bond markets to protect long term bond yields from rising.
According to money market analysts, the central bank will have its eyes on important numbers like inflation and earnings. Consumer Price Index (CPI) hit a nearly six-and-a-half-year high of 7.6% in October. The repo rate stands at 4.00%, and reverse repo rate at 3.35%.
Here is what two debt fund managers have to say about the coming policy.
Lakshmi Iyer, President and Chief Investment Officer (Debt) & Head Products, Kotak Mutual Fund
“What should a central banker do when one is seeing rising yet likely-to-cool-off inflation? When you see a good Q2 GDP growth data, yet uncertainty exists with respect to coming quarters. When you need liquidity to provide credit to real sector, yet grapple with not so high credit offtake. These could be the centre point for discussion ahead of the RBI monetary policy. We expect the RBI to be on hold yet another time – and suggest an extended pause as conflicting signals emerge from macro data points. Focus also could be on how much is the desired liquidity to ensure optimum balance between rates and monetary transmission.”
Pankaj Pathak, Fund Manager- Fixed Income, Quantum Mutual Fund:
Given the sticky inflation trend, the RBI will likely keep policy rate unchanged. Economy is recovering at a faster pace than earlier anticipated. But the recovery is still very fragile and it would need an accommodative monetary policy to sustain over the period. The RBI may not be willing to surprise markets negatively. They will continue to look through the recent inflation readings and wait for it to come down over next two three quarters.
It would be crucial to see how the RBI view the current liquidity situation and influx of foreign capital into Indian markets. If forex inflows continue the RBI will be forced to absorb a part of liquidity surplus for slightly longer period.
From bond markets prospective this policy will most likely be an non-event. The RBI will continue to intervene in the bond markets to protect long term bond yields from rising.
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