RBI to continue hawkish stance: HSBC India

Vineet Malik, Director and Head of Interest Rates, HSBC India said the market has lowered probabilities that they assign to an aggressive hike by RBI. "We haven't yet seen any real drop in the headline inflation rate. So, we expect the RBI to continue to be hawkish. Inflation will continue to be the paramount concern as of now. They will intend to be very watchful and continue to take monetary measures as and when appropriate."

Excerpts from CNBC-TV18’s exclusive interview with Vineet Malik:

Q: What is your call? There are a few days to go before the credit policy. What do you think the market is factoring in at this point?

A: The market has pruned down some the probabilities of the aggressive rate hikes by the RBI. A couple of factors have changed over the past week or so like the sharp oil and crop prices which could give some comfort to the RBI and a general sense of the global slowdown.

Keeping that in mind, the market has lowered the probabilities that they assign to an aggressive hike by the RBI. However, at the same time, the Finance Minister said that inflation continues to be the paramount concern. We haven’t yet seen any real drop in the headline inflation rate. So, we expect the RBI to continue to be hawkish and inflation will continue to be the paramount concern as of now. They will intend to be very watchful and continue to take monetary measures as and when appropriate.

Q: How much are you factoring in terms of a hike on either the repo rate or CRR?

A: The market is currently factoring and is divided between a no-change and a 25 basis point hike.

Q: You spoke about how crude falling has given a respite to the RBI. Where do you factor in the rupee amidst all of this as crude is falling and with potential rate hikes?

A: The factors are all broadly interlinked. The rupee has strengthened on the back of the sharp fall in oil prices. However, it is still early to say that we have seen an end to the commodity cycle and you could see oil going all the way back up in the days to come. So, there is a fair amount of apprehension amongst market players.

I don’t think people are still willing to say that the worse is behind us. There are a lot of ifs and buts and lots of global factors dominating the domestic markets here. The inflationary pressures still continue and to talk about a slowdown in the Indian context can at best be anecdotal as there hasn’t been any data which is pointing to a sharp slowdown. So, inflation still continues to be the big concern.