The December wholesale price index or WPI-based inflation data came in at 6.16 percent. Both Siddhartha Sanyal, Chief India Economist, Barclays and Ashutosh Raina, Head of FX trading, HDFC Bank at pegged it below 7 percent. Going ahead, Sanyal sees consumer price index or CPI-based inflation to fall further.
The duo also expect the Reserve Bank of India (RBI) to hold policy rates in its third quarter review of monetary policy 2013-14 scheduled for January 28. "Since the overall take on the economy in terms of both growth and inflation is still very benign, I do not think there should be a rate hike in this policy," said Sanyal.
Raina expects the bond market to be in a range for some more time because of the expected news on switch. "I think the market is expecting sub 7 percent kind of a number on WPI and the rate hike as of now looks on hold," said Raina.
Also read: December WPI may ease to 7.1% Vs 7.52% MoM: CNBC-TV18 poll
Below is the verbatim transcript of their interview on CNBC-TV18
Q: Have you read the consumer price index (CPI) number as fundamentally positive and what are you expecting from the Wholesale Price Index (WPI) numbers today?
Sanyal: CPI at 9.9 percent is a good number and a significant drop. However, in that particular print vegetable price fall had been around 18 percent month on month between November and December; actually on ground possibly the fall was somewhat bigger. So, going ahead it will be fair to expect some more softening in CPI print.
In fact if we expect a similar kind of a fall or slightly bigger fall in vegetable prices month on month in case of WPI print, so the print can also be significantly softer. Our own expectation is around 6.5 percent.
Q: The slowing CPI inflation has helped Bond Street, the bond yields have opened up at about 8.66 percent or so. What is your expectation of how the bond market will perform going ahead, we have the WPI numbers as well today?
Sanyal: There are two-three positives coming in for the bond market; one postponing the auction is a good sign for fiscal management and expect the 4.8 percent fiscal deficit number, the government has for this year will ultimately be met. That will recover a bit of expenditure curtailment but that will ultimately be met this year as well.
Two, inflation number are clearly softer; our WPI expectation is at 6.5 percent, which will be a very big positive for the market.
Three, once we get greater clarity from the Reserve Bank of India (RBI) on the debate around WPI and CPI - on which one should be a bigger focus area for their policy making. Hopefully that also comes in a while and we get somewhat positive on that side as well.
Q: What are you expecting on WPI and is the market now factoring in a no rate hike?
Raina: I think the market is expecting sub 7 percent kind of a number on WPI and the rate hike as of now looks on hold.
Q: How would you expect the bond yields to move if the WPI number came north of 7?
Raina: Bond yields should be moving in range as there is some news of switch going on in the market, so that should cap the upside for the bonds at the moment. So, it should be a range bound market in the bonds going at for some more time.
Q: If the WPI were to come north of 7 percent, would you revive a rate hike hope?
Sanyal: I will not react to a headline print in case of RBI action because the overall take on the economy in terms of involving both growth and inflation is still very benign. So, I do not think there should be a rate hike in this policy as well.
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