Excerpts from CNBC-TV18’s exclusive interview with Arun Kaul:

Q: What is your opinion on the Reserve Bank of India (RBI)’s possible move at this juncture on interest rates, given the increase of 3% in March?

A: In the morning we have seen the bond market starting at 7.87.  Right now the yields have come down to 7.83. The feeling in the bond market is that the demand for credit could slowdown the surplus money, which we will find in the bond market. There is bond affluence, which will reflect some bullishness.

As the RBI is concerned, I think it would like to wait and observe the trend and then take whatever steps they need to take. But what we are worried about is also liquidity, which is very poor in the system right now after the cash reserve ratio (CRR) hike. For example today the system is seeing shortage in the liquidity, which could accentuate but only at the end of the month or towards June 15. After the first advance taxes payments have been made, you could see liquidity tightness coming in.

Q: How are you reading the moves in the rupee market, which is at 41.80 last week. A significant amount of exporter is expected to come in.  Do you think this time around 42 could be breached and in this case what is the expectation from the RBI?

A: We have not seen much of the supply of dollars in the market. The demand is very strong for both- oil companies and importers and exports are just holding it back. At the same time non-deliverable forwards (NDF) is high and there is a gap for almost 10 paisa between the domestic and the overseas markets. There is a possibility of rupee breaching 42 also. But the market is very keenly watching on  RBI’s move as very less intervention was seen in the last week. So the market is keenly waiting for and is watching for the next step of RBI.