Hopes of liquidity measures to keep markets anchored: Lakshmi Iyer, Kotak MF
Bond markets wanted much more and so there has been a small selloff after the policy announcement.
The RBI credit policy did not spring any nasty surprise for the market. What is your view?
A 25 bps cut was baked into the prices. There was no negative surprises per se. We are a little bit circumspect on growth given the global headwinds which are lingering on. The inflation outlook is benign, less than 2.6% right now and therefore a cut in inflation target. Bond markets obviously wanted much more and so has been a small selloff. But I do not think one needs to read too much into it because the bulk of it was already baked into the prices.
The good part is that the liquidity measures are not ruled out. The window of open market operations might not be as high as what it was in the last financial year, but it may not be completely zero as well. That hope will continue to keep the markets anchored. But for now, things are largely in line with expectations.
Given that the policy is completely at par with expectations, how are you reading into the commentary which is neutral but is caveated. It talks about what global growth is going to be like.What is it telling you about the future trajectory of rates?
The fact that the MPC has – a) a split vote and so it was not a consensus decision in terms of a rate cut. Second, the stance is neutral. Obviously, that gives cues to us that as a market participant, the data both from a global perspective and more importantly India perspective pans out. We are going to have the mother of all events -- the general elections -- post which, the next monetary policy decision will come.
That gives enough breather. It seems to be fairly well timed in terms of delivering a rate cut which is in sync with what the world is behaving and keeping the stance neutral. This means you had time to react or act, if there were to be a populist outcome in the upcoming elections. That is now going to assume significance with the policy out of the way.
The cues from the election and incoming data points will be the drivers for the market participants going forward. As I said, markets seldom like surprises. Of course, positive surprises are welcome but in this case since the cat was out of the bag quite some time back, it is going to be a little bit of a lull for now. A lot of data would be driving the markets going forward.