Money & Banking

‘Rate cuts seem probable only in Jan policy’

Shobha Roy Kolkata | Updated on October 30, 2012 Published on October 30, 2012

Rahul Goswami, CIO-Fixed Income, ICICI Prudential AMC, on Tuesday said that the Reserve Bank of India has maintained its stance of tempering inflation by maintaining status quo on repo rate and reducing the cash reserve ratio by 25 basis points.

“RBI has a tightrope to walk on of managing inflation and growth. As the government’s reform actions translate to moderation of the twin deficits, RBI will get significant headroom to initiate aggressive monetary easing which can come as early as the first quarter of calendar year 2013,” he said.

Though the current move might pose short-term challenges for the bond market, however, the trajectory of long-term yields would remain southwards, he said.

According to Arvind Chari, senior fund manager (debt), Quantum Asset Management Company Ltd, rate cuts by RBI seem probable only in the January policy as headline inflation readings in the next two-to-three months are likely to shoot up further from current levels.

“This will take bond yields higher from current levels as November is a heavy supply month. Bond markets now look to open market operations for support. Systemic liquidity, adjusted for government balances is not that bad, and the 25 basis points cut in CRR will further cushion liquidity keeping short-term interest and corporate bond yields benign,” he said.

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Published on October 30, 2012
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