What will the future rate trajectory going to be from RBI? Abheek Barua answers

economictimes.indiatimes.com:

«I would tend to see that the broad message of the policy as very much in line with expectations, very justifiably highlighting inflation risks, revising the Q2 numbers and so forth,» says Abheek Barua, Chief Economist, HDFC Bank.Was the stance really that hawkish for the market to fall the way it is because it is pretty much along expected lines? Yes, you described the key elements of the policy but one thing that you did not sort of refer to was this incremental CRR. It might be temporary, it could just be viewed as a technical measure but if you see it as an additional monetary policy signal and sort of a tightening signal at that, indicating that the RBI is not comfortable with current levels of liquidity, whatever the drivers may be, then I think that is the bit which was not priced in by the market.

I think that bit, whether you see it as a signal, whether you see the impact on the cost of funds for banks, etc, is a surprise. I would tend to see that the broad message of the policy as very much in line with expectations, very justifiably highlighting inflation risks, revising the Q2 numbers and so forth.

But I think this additional bit came as a bit of a surprise and the market is seeing this as a further proof of the RBI's hawkishness, you could call it hawkishness or its commitment to bring inflation down to the 4% level in the medium term. And if you just look at the numbers that they have put down in terms of the forecast, it is sort of way off the 4% mark which also suggests that rates will be on hold or possibly even higher if conditions warrant for longer.