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Straight from the Specialists

India Markets Weekahead – Volatility seen as RBI policy review in focus

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Volatility is here to stay and trying to predict the markets on a daily basis is a futile exercise. It’s no better than tossing a coin.

Monsoon rains are early and heavier then normal, raising the hopes of green shoots in the next few months. Macro numbers were showing signs of bottoming out but the rupee slide has thrown calculations awry. A feeble request by the finance minister urging people to shun gold won’t do much good in a country enamoured by gold.

An amnesty scheme would have been one of the ways of shoring up foreign exchange reserves but the affidavit filed along with the Voluntary Disclosure of Income Scheme in 1997 bars the government from launching a similar scheme.

Benign inflation figures would have encouraged the Reserve Bank of India (RBI) Governor to cut rates further but inflation in terms of currency depreciation could deter him from doing so. The delay in economic recovery may lead to further non-performing assets that could add further stress to bank balance sheets.

Why the RBI should cut rates again

(Any opinions expressed here are those of the author and not of Thomson Reuters)

In May, the Reserve Bank of India (RBI) had hesitatingly cut the repo rate by 0.25 percent, which made no impression on the stock market or commercial banks. That was because both expected the cut to be more substantial. But the RBI had not obliged.

Perhaps the monsoon, which arrived on the dot and is progressing satisfactorily, may make some difference to the RBI’s expectations of food inflation – which had been its principal reason for hesitancy. While it’s too early to predict monsoon behaviour for the rest of the season and the likely improvement in agricultural production, it does appear the improvement should be significant and inflation dampened perceptibly. Reduction in inflation, however, is not the only reason why the interest rate should have been cut.

No silver lining in this monsoon cloud

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

India’s monsoon rains have been delayed and were already 30 percent deficient by the end of June. There are doubts whether rains will pick up during the rest of the season. August and September are likely to be dry which will damage crops and reduce farm incomes.

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