Indian central bank, the Reserve Bank of India (RBI) continues to be cautious about the state of the economy. In its macro-economic report ahead of today's credit policy, the central bank has maintained that monetary space is limited this fiscal.
CNBC-TV18's Latha Venkatesh reports that the RBI will be more dovish given the seminal fall in commodity prices. However, that has not been acknowledged in the macro economic report. The market believes that the report usually tends to be more hawkish and therefore today’s policy will be more dovish.
A complete 100 percent respondents of the old CNBC-TV18 poll were expecting a 25 basis points (bps) repo cut but only 20 percent expected a cash reserve ratio (CRR) cut. However, given the fall in commodity prices in the past two weeks, people have become more dovish in their expectations.
All respondents in yesterday’s poll expected a repo cut and 40 percent expect a CRR cut. So, the expectations of a CRR cut have gone up. Most don't expect the tone to be as hawkish as yesterday’s macro economic report but what people will really watch out for is the tone of the policy.
Bond prices in all probability will fall and yields will rise may be closer to 7.75 from the 7.72 close that is because of the hawkish nature of yesterday’s report. Things will then start correcting and market will look at what the policy offers. If there is a repo cut and hawkish language then yields could once again rise to above 7.70 to 7.72-7.73 levels.
If it is a repo and a CRR cut then yields will fall towards 7.6. If it is only a repo cut but dovish language, then again we should see yields fall to around 7.65 levels.