We now expect the RBI to raise rates by at least 50 bps in 2010
Commenting on the First Quarter Review of the Annual Monetary Policy 2010-11, Rohini Malkani, Economist, Citi India said, “The higher-than-expected hike in the reverse-repo rate (1) narrows the LAF corridor to 125bp and should reduce the volatility in overnight rates, and (2) short-end rates should be anchored at a higher rate.
While the RBI has said that liquidity conditions will ease, it should remain in a deficit mode with the repo rate likely to be the operative rate. This gels with its statements that tight liquidity conditions would help 'greater traction' of policy rates and that it “will continue to evaluate an array of aggregate and disaggregated measures of inflation”.
Given the growth and inflation outlook, we now expect the RBI to raise rates by at least 50 bps in 2010. This would take the repo and reverse repo rate to 6.25% and 5% respectively by Dec 10.
Encouragingly, to introduce flexibility and eliminate the 'surprise element of off-cycle actions', the RBI has said that, in addition to its quarterly policies (Apr, July, Nov, Jan), it would be coming out with mid-quarter reviews in June, Sept, Dec and Mar. Powered by Capital Market - Live News
|