Yes Bk not expecting any RBI action till policy meet

Ajay Mahajan, Group President-Financial Market, Institution and Invest Management of Yes Bank does not expect any rate action in the policy. He does not see the market going up; however a continuation of profit taking may be witnessed.

He said, “ Unless the inflation negatively continues to surprise everybody and we really look at a far higher than a 12% type of a number in the ensuing weeks; in the short-term on rate increases, we are done.”

Excerpts from CNBC-TV18’s exclusive interview with Ajay Mahajan:

Q: What's the outlook now on the bond markets? We are just a couple of weeks away from July 29. What would you expect byway of RBI action on that day?

A: We are not actually expecting any rate action from the central bank; at least until the policy, and until data coming out today changes our view. We are actually not expecting any significant rate action in the policy itself. Just commenting on the rates, the bonds cleared 9.13%, which actually surprised the market somewhat as the market, was reasonably bullish for the auction in the morning and early afternoon. But the auction cut off at 9.13% did sort of create a small bearish sentiment in the bond market on Friday.

One good news is that with the equity and rupee stabilizing, a result of some amount of contagion is followed in the rupee. The Central Bank of Korea has been intervening quite aggressively and has made positive comments, which has led to Korean Won strengthening by about 20 bps - 1057 to 1035-1040 levels. That also has somewhat of a positive effect as the offshore positioning on Indian rupee has also now begun to ease.

Overall, considering these factors we feel that for the next week or two, the market may not go up a whole lot from here. In fact, we might witness continuation of profit taking as people cut some of their interest rate date – I E bond short positions ahead of the policy.

Q: What would your outlook be from the Reserve Bank for the next quarter say, even if you are not expecting anything on July 29^th itself? What kind of repo action or CRR action or both are you expecting say in the next three to six-months?

A: The lag effect of the previous CRR hikes as well as the impact of the repo rate increases, two of them - 25-bps and 50-bps, should possibly be a reasonably strong dose for the market in the short-term to contend with. The actions of bulk of the banking system in terms of increasing their PLRs in many cases and the deposit rates, also reflect that the market is adjusting to a higher cost structure or rupee interest rate cost structure.

So, unless the inflation negatively continues to surprise everybody and we really look at a far higher than a 12% type of a number in the ensuing weeks; in the short-term on rate increases, we are done.