Is RBI inaction cursor for govt to act on rupee, inflation?

Moneycontrol Bureau

The Reserve Bank of India's inaction today was widely anticipated with concerns around the rupee getting highlighted. Anant Narayan, Co-Head of wholesale banking, South Asia, Standard Chartered Bank does not see the fall in rupee abating and points out that foreign investors may now start pulling out of equities. From the point of view of market, he see FOMC meet as the next trigger. On the other hand, S Narayan, former finance secretary sees RBI's status quo on rates as a message to the government to urgently address rising food inflation and stem currency fall. Speaking about the complex statements of RBI’s caution, S Narayan said food inflation's persistence presence signals that the government and policymakers are not addressing the reason of its rise. He fears unless the core issue is addressed, food inflation will continue to rise.  "Is it an issue of supply? Is it an issue of distribution? Is it an issue of urbanization? Is it an issue of market pricing? I think because we have large stocks of cereals in our food grains, it is purely a distribution issue," he told CNBC-TV18. Also read: Global factors will determine rate cut in July: Rangarajan There are hopes that currency depreciation will halt but then current account deficit has to come down, which means export sector has to perform better and imports have to lessen, S Narayan said. The former finance secretary is not too convinced that imposing higher tax on gold imports will actually cut down imports. "So, in both these areas, on currency as well as on food inflation the RBI is pointing out that much more needs to be done and if it is not done then there will be very little scope for RBI to act even in the July policy," he said. Anant Narayan, (of Standard Chartered Bank) is not too hopeful on the rupee front. While debts markets have see FII outflows, the action in equity FIIs, where 11 percent negative growth in Dollar Nifty terms in the last one month has happened, will be the next source of worry. “It is one thing to stem the outflow, while the other thing would actually be to try and draw in fresh money into the markets." Anant Narayan said. "So there are axes of vulnerability that we have to worry about. The immediate thing that the market will look forward to is probably FOMC meet on the 19th," the StanChart economist said. He feels the RBI is comfortable with current liquidity situation and may not come up with open market operations right away. "The shortage in liquidity at the moment is about Rs 900 billion...but the RBI in the past has clearly been comfortable with that kind of liquidity situation particularly in the aftermath of an advance tax situation." he said.