Find out: How can mkts react to RBI's credit policy
Will the RBI revise its FY11 inflation forecast higher? If yes, then how will the markets (that are already quite iffy) react to it?
January 25, 2011 / 09:37 AM IST
The market's focus, off late, has been on macro factors like inflation. With this, all eyes are now on RBI Governor D Subbarao as the central bank meets for the first time in 2011 today to assess the monetary policy.
The RBI and government's desperation to fight inflation has prepared the markets for a rate hike. According to CNBC-TV18 poll of bankers and economists, majority expect RBI to hike repo and reverse repo rates by 25 basis points each. Only a minority 6% expect a larger hike of 50 basis points.
So will the RBI revise its FY11 inflation forecast higher? If yes, then how will the markets (that are already quite iffy) react to it? Raamdeo Agrawal co-founder and director of Motilal Oswal Financial Services, says the stock market is already priced in 25 basis points increase in policy rates. "If 50 bps increases comes, we may have a stagnant market otherwise there could be a relief rally."
Sajiv Dhawan of JV Capital Services says, a 25 bps hike won't be a problem, but a 50 bps hike would be negative for the market. "There is a large section that feels that the RBI will bite the bullet and be a bit more aggressive and go for 50 basis points and I think that will obviously be a negative reaction for the markets," he adds.
Concurring with Dhawan