Interest rate cut unlikely as inflation remains RBI’s chief worry

This week, the stock markets will be driven by data both from home and abroad.

Auto numbers, cement despatches, HSBC’s indices on manufacturing and services will come this week. This is bound to have a pronounced effect on the Nifty and the Sensex.

Both are expected to rebound from last week’s close.

Policy review

The monsoon’s progress across the country has been insufficient and this has the ability to stoke inflation – RBI’s main worry.

On Tuesday, the RBI will review the monetary policy. Though market-men are expecting a rate cut, it is unlikely as inflation numbers are above RBI’s comfort zone.

Hence the benchmark 10-yr G-Sec is likely to remain between 8.20 and 8.25 per cent levels. Yields could, however, soften to 7.80-7.85 per cent levels if a rate cut happens.

It would be interesting to see SEBI’s stance in the matter of six mid-cap stock prices crashing last week.

The stocks in question are Parsvnath Developers, Tulip Telecom, Era Infra Engineering, Glodyne Technoserve, Radico Khaitan and Pipavav Defence & Offshore Engineering.

The rupee is likely to appreciate against the dollar and breach Rs 55 levels. It could hover around Rs 54.80 to a dollar this week.

ECB’s rate decision

Global markets this week will react to the decision of the European, British and US regulators decision on their respective benchmark interest rates.

A rise on sentiment is expected to harden US treasury yields to above 1.60. It could even touch 1.65 per cent levels.

Currency markets are expecting the Euro to strengthen against the dollar. It could breach the $1.2450 levels.

Nymex crude futures are showing signs of bullishness and are expected to touch $94.5 levels to a barrel.

Finally, gold is likely to remain range-bound and between $1,625 and $1,660 levels this week.

raghavendrarao.k@thehindu.co.in

(This article was published on July 29, 2012)
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