RBI to prolong pause, probability of hike small, says ICICI Securities Primary Dealership CEO
The recent rebound in inflationary pressures has sparked apprehension of whether more rate hikes are in the offing, but if one excludes the volatile movements in vegetable prices, the current levels of the consumer price index may not call for more tightening, Shailendra Jhingan, CEO of ICICI Securities Primary Dealership told Bhaskar Dutta. Edited excerpts:Food inflation has hardened considerably and there are concerns over inflation spillovers. What do you expect from the MPC's policy statement on Thursday? We think that RBI will retain the monetary policy stance of withdrawal of accommodation.
The MPC will likely highlight the risks of elevated food inflation. A lot of it is happening due to higher vegetable prices, particularly tomatoes. That bit could probably be given less salience.
What will matter more is what's happening to the other categories of food prices such as cereals, spices, pulses etc where we are seeing upward pressure. Those risks could be highlighted. It's important to track the CPI ex-vegetables.
As long as it is around the current 5.2%, I think the repo rate is at the correct level. The market will be looking at the CPI forecast for the April-June quarter. In the last MPR (Monetary Policy Report) it was around 4.5%.
If it stays under 5%, we can expect the policy to be on hold for a long period of time.Are rate markets shifting back towards the policy-tightening narrative? Of late, some segments of the overnight indexed swap (OIS) curve are showing expectations of rate hikes. The one-year OIS has gone up to around 6.90% levels, where about a 35-40% probability of a rate hike within a year has been priced in. I think the market seems to be reacting to two things there. One, there has been upward
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