DSP ML sees 50 bps CRR hike to curb inflation

Dhawal Dalal, Fund Manger, DSP Merrill Lynch, expects RBI to raise CRR by 50 bps to control inflation. He believes the rupee can appreciate to 39.50 gradually.

Excerpts from CNBC-TV18’s exclusive interview with Dhawal Dalal:

Q: How you expect the rupee to behave from hereon? Do you see substantial amount of strength coming into domestic currency?

A: Ideally, I would expect the rupee to gradually appreciate over a period of time. At present, because of the domestic outflows happening, the rupee is finding it a bit tough to appreciate. But over the period of time, it can appreciate to 39.50 gradually.

Q: The Market Stabilisation Scheme (MSS) auction of Rs 5,000 crore has been slated for this week. Do you think that is only a liquidity measure that the Reserve Bank of India will take or do you think they might even go the CRR way given the inflation concerns?

A: There are lots of reports available that suggest that the RBI will first try to sterilise the surplus liquidity by way of auctions and MSS bonds. Later on, if inflation remains at an elevated level, then a CRR hike can be considered.

Q: Are you in the camp that would expect a 50 bps hike?

A: Yes.

Q: How would you expect the ten-year paper react to that?

A: Currently, the ten-year paper is approaching 8%. Between now and the end of April, if the CRR hike has to be announced, it will remain range bound with slightly declining bias purely from the technical perspective.