Mkt playing safe now; hawkish comments from Fed likely: DBS

Even as the Wholesale Price Index (WPI) numbers came in better-than-expected, Arvind Narayanan, head of sales, treasury & markets, DBS Bank believes the market is likely to play safe. He sees some sort of urgency between the government and the Reserve Bank of India (RBI) to address the flagging economy.

He feels a lot of correction has already happened in the markets since the US Federal Reserve chairman's last comments. Going forward, he expects a more hawkish Fed on the tapering of quantitative easing. Below is the verbatim transcript of Arvind Narayanan's interview on CNBC-TV18 Q: Is there a bit of relief for the rupee after the WPI numbers?
A: Absolutely. The sentiment is slightly better after the numbers; plus there seems to be some kind of urgency between the government and the Reserve Bank of India (RBI). So the market is playing it a bit safe; dollar-rupee in the short-term look like a safe strategy. However, the fundamental questions need to be addressed yet and it would be interesting to watch the next few days on what is lined up on that front. Q: In the next few days Federal Reserve Chairman Ben Bernanke is suppose to speak again and one might expect to hear more about the quantitative easing (QE) programme from the Fed. So, what really are you expecting post that if Bernanke goes onto say that QE will continue for some time? What does this mean for the rupee?
A: On Wednesday, Bernanke will give a lot more clarity on the QE tapering because the House is Republican-led and they would definitely want more clarity that QE tapering is on its way and there is no change in terms of intent and therefore, the message would be a lot more hawkish then. A lot of correction has already happened between the last testimony and now. So, markets have sufficiently recovered. This Wednesday we will see some more talks about rates going higher and QE tapering, which would be dollar positive.