Week Ahead: Central banks to hog limelight; rupee key

It is a busy week ahead, with RBI meeting on 28th January and Fed meeting on 28th-29th January along with expiry of F&O on 30th January.In the RBI meeting, in most likelihood, some of the recommendations announced last week would be formalised while maintaining a status quo on rest of the monetary parameters. Some of the recommendations include making 14 day rate as benchmark compared to prevalent overnight rate, CPI the main gauge of inflation and inflation being the main monetary policy objective ahead of economic growth and financial stability. To be noted is that inflation targeting framework would need legislative approval. The RBI panel has also recommended a CPI target of 4 percent by 2016 – in that case rates are expected to remain elevated for longer than expected and that would actually keep a pressure on the interest rate sensitive sectors for quite some time.Jon Hilsenrath, chief economics correspondent for The Wall Street Journal and an authority on Fed whom the Wall Street believes has an ear into Fed, is expecting that disappointing jobs report is likely to curb the Federal Reserve‘s enthusiasm about the U.S. economic recovery, but it seems unlikely to convince officials to alter the course Fed Chairman Ben Bernanke laid out for the central bank in December. Bernanke strongly suggested at his December press conference that the Fed’s inclination is to reduce the purchases by $10 billion increments at every meeting.The expiry would keep the markets volatile, with the markets generally ignoring the fundamentals during the expiry week as F&O dynamics take over. Both the domestic as well as the global events may lead to some rise in implied volatility.Rupee would be also in focus, not only due to the month end demand of importers but also due to the fact that the Argentinian crisis has fuelled aversion towards emerging market currencies.(This article is contributed by Aviral Gupta, Investment Strategist, Mynte Advisors)