Third Quarter RBI Monetary Policy 2010-11 expectation: Anand Rathi

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Third Quarter RBI Monetary Policy 2010-11 expectation

Mr. Sujan Hajra,Cheif Economist, Anand Rathi Financial Services  

• We expect the RBI to raise both repo and reverse repo rates by 25 bps tomorrow (25 Jan ’11) during the 3Q Monetary Policy review.
• The continuance of large liquidity shortage (>Rs1tn) has raised expectations of CRR cut, but we think this is unlikely.
• Announcement of further purchase of govt. securities by RBI under OMO and/or temporary SLR cut likely.
• RBI likely to raise the expectation for end-Mar ’11 inflation from 5.5% to 6.5% and keep the growth expectation for FY11 unchanged at 8.5%.
• Market has factored in 25 bps rate hike; any stronger measure would be negative. Hike in inflation expectation and SLR cut could be negative for debt market.