What will the future rate trajectory going to be from RBI? Abheek Barua answers
![](https://m.economictimes.com/thumb/height-450,width-600,imgsize-31492,msid-102597944/abheek-barua-1200.jpg)
Synopsis
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.
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.
Unlock Leadership Excellence with a Range of CXO Courses
Offering College | Course | Website |
---|---|---|
Indian School of Business | ISB Chief Technology Officer | Visit |
IIM Lucknow | Chief Operations Officer Programme | Visit |
IIM Lucknow | Chief Executive Officer Programme | Visit |
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. So, I would read the market's somewhat unexpected reaction as a response to these developments.
Look, I kind of disagree with your interpretation of what the governor said. The governor said that, look, food and other things might be, I mean, vegetables, tomatoes, potatoes might be transitory but there are El Nino related risks which global food markets are tight, etc, so we might have a problem that extends beyond this transitoriness of vegetable prices.
Stocks Recommendations
But if we have additional problems on the food side, then the RBI might be forced to act. So, in the best case no further action for the rest of the year. This liquidity action turns out to be a purely sort of technical transitory move, rolled back in September, but given the 4% target and the continued emphasis on that rates might not before 4%, a lot of other factors are at play, I am not going into that -- the Fed, US CPI, etc, but if things turn out to be not as rosy as the baseline scenario is painting and you have a problem with cereal prices, pulses prices, oil prices, I am talking about cooking oil if they remain elevated, then we have a different story and let me just be a little bold and say maybe a rate hike is not off the table going forward.