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Apr 16, 2012, 03.34 PM IST | Source: CNBC-TV18

Credit Policy: RBI may hold CRR cut for later date: DSP BlackRock

With inflation data in line with market expectations, Dhawal Dalal of DSP BlackRock Investment Managers believes that the Reseve Bank of India will introduce a rate cut in its forthcoming policy meeting.

Dhawal Dalal

EVP & Head - Fixed Income, DSP BlackRock

More about the Expert...

With inflation data in line with market expectations, Dhawal Dalal of DSP BlackRock Investment Managers believes that the Reseve Bank of India will introduce a rate cut in its forthcoming policy meeting.

Unless the central bank surprises the market participants with a larger than expected rate cut, Dalal feels that the benchmark 10 year is unlikely to go below 8.45%. According to him, it will probably remain in a range of 8.45-8.60% in the near-term. 

Below is an edited transcript of Dalal's interview on CNBC-TV18. Also watch the attached video.

Q: How are you reading the inflation data? Does it increase hopes of a rate cut tomorrow?

A: I think the inflation number has been pretty much in line with what market was anticipating. This reinforces the belief that this is the golden window for the RBI to introduce a rate cut tomorrow. After that, further rate cuts will be dependent on the systemic liquidity, current account deficit as well as global oil prices.

Q: What is the movement of the bond prices that you expect tomorrow when the expected rate cut materializes?

A: We expect the government bond prices to remain range bound with a downward bias after the credit policy as the market participants will start focusing on the impending supply, which is on average about Rs 15,000-18,000 crore a week. Given the fact that the bonds have done extremely well from the peak yields of around 8.75%, the benchmark 10 year yield has come down all the way to around 8.45%.

I think from 8.45% there is a very strong technical resistance for the bond yields to fall further. Unless the Reserve Bank of India surprises the market participants with a larger than expected rate cut, we find that the benchmark 10 year is unlikely to go below 8.45%. I think it will probably remain in a range between 8.45-8.60% in the near-term.

Q: Does that mean it will remain at 8.45% even if a rate cut comes?

A: For the moment, it could probably trade slightly below 8.45%. But in my opinion, 8.45% appears to be a good support from a technical perspective.

Q: What do you expect to hear on the CRR front because there has been some mixed opinion? Most of the economists we spoke to are not expecting a cut, but some bankers like SBI believe that the right tool for the RBI to use would be another CRR cut?

 A: Yes, some of the market participants do expect the RBI to announce a CRR cut. But given the kind of improvement in the systemic liquidity in April month-to-date as compared to March, we believe that RBI should probably hold onto CRR cut for later dates.

Also read: 25 bps rate cut will be a non-event, say experts

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