A Prasanna Chief Economsit at ICICI Securities expects headline inflation to be around 7.03%. He adds CRR hike cannot be ruled out.

Excerpts from the exclusive interview with A Prasanna:

Q: We were just discussing bond yields and what the Reserve Bank could possibly do, what is your own assessment on the policy action and the impact on the ten-year from hereon?

A: RBI will be focused on sucking out excess liquidity and I think they have already started doing that by issuing MSS bonds now I think they will continue doing that. Possibly depending on the liquidity situation I think you cannot rule out a CRR hike in the policy. So as of now that is what is our thinking. We do not think that RBI will touch the LAF rates. I think they will be focused more on liquidity. Also I think Central Bank will be mindful of the fact that anyway growth is slowing down and probably with a lagged effect domestic inflationary pressures will also ebb later in the year.

Q: We are going to be looking out for inflation again tomorrow what is the expectation or the calculation you have in mind?

A: I am looking at a headline number of 7.03 because I think most of the steps taken by the government probably would have borne fruit in the first week of April onwards and this reading is just prior to that. So probably subsequent readings some of the steps, which are already taken by the government will start having an impact.

Q: What is your call on the rupee, it has been fairly rangebound between about 39.80 to about 41-42 do you think it will continue to move in that range?

A: My sense is that inflows are dried up quite a bit. On the equity market side, obviously there is still uncertainty and I do not think FII flows are picking up and I think on the ECB side also, the regulations have been tightened fairly significantly. So I think the flows have dried up quite a bit, so I do not see rupee strengthening from hereon and I see it in fairly rangebound from nowon.