RBI policy review, winter session to guide market

Market is expected to keenly follow the Reserve Bank of India's money policy and the winter session of Parliament for direction this week. The figures showing fall in wholesale prices in November may lift money easing hopes but the rebound in industrial activity may have given further room to the apex bank to maintain status quo on policy rate until the picture gets clearer.

A median estimate of 25 economists is already hinting at no change in short-term policy rate. Nonetheless, another survey of 23 economists hinted a 25 basis points cut in the cash reserve ratio (CRR).

"We do see RBI keen to begin playing its part in supporting the economy, especially with a range of fiscal and investment-friendly reforms being undertaken by the government. Indeed, we think the central bank would need several months of similar data before committing to a path of cutting rates. While the probability of a January-rate-cut could rise appreciably if RBI issues a dovish sounding statement next week, during which we expect no policy rate cut, but a 25 basis points cut in the CRR," said Taimur Baig, chief India economist at Deutsche Bank.

Richard Iley, chief economist for Asia at BNP Paribas, said, "Headline WPI inflation now looks on track to fall below 7 per cent by next March, opening up space for RBI to trim policy rates. We still expect a CRR, rather than a repo rate, cut next week. But the policy rate now looks set to be reduced in January."

Rajesh Iyer, head of products and research, Kotak Wealth Management, too believes that there are chances that RBI can cut CRR by 25 basis points, which may infuse Rs17,500 crore of liquidity into the banking system," he said.

Meanwhile, market will pay heed to the last week of winter session after the cabinet last week approved a committee to fast-track large investment projects, cleared the land bill and approved the new urea policy recommending higher fixed returns on green-field and brown-field urea projects.

"The government on Friday finally approved the cabinet committee on investment to accelerate the pace of approvals for investment projects. While this will be a less powerful institutional structure than the national investment board, we believe it should still be a positive move towards streamlining the project approval process," said Chetan Ahya of Morgan Stanley.

Vivek Mahajan of Aditya Birla Money, said, "The government clearly seems to be demonstrating intent and urgency in pushing investment. Our markets continue to look good. While there might continue to be some selective profit taking in certain sectors and stocks, investors who don't have adequate weightage of Indian equities in their portfolio, would come in to support the markets."

amitmudgill@mydigitalfc.com

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