Several market watchers and economists are of the opinion that the stock markets have already factored in a possible status quo in RBI's credit policy to be announced on Tuesday.

On the other hand, a possible cut in cash reserve ratio has not been completely factored in yet and may come as a surprise to a section of the market, said Mr Vaibhav Aggarwal, Vice-President, Research and Banking, Angel Broking. However, any hawkish indication from the apex bank could also spring a negative impact on the bourses, he added.

At the customary pre-policy meeting with RBI officials, banks had asked for a cut in CRR — the amount of deposits they have to keep with the RBI. The CRR rate is at 6 per cent and has been unchanged for over a year, with RBI focussed on taming inflation and increasing the repo (or its lending) rate.

Market survey

According to a survey of market participants by HSBC and Royal Bank of Scotland (RBS), the RBI is unlikely to heed calls for cutting the CRR in the forthcoming monetary policy review. Fifty one per cent of 105 market participants polled by RBS said they do not expect a CRR cut. According to Mr Sunil K.Sinha, Head and Senior Economist, Crisil, there are two sets of people with two sets of expectations in the market.

While one group is expecting a status quo, the other believes that the central bank may tinker with the CRR to address liquidity tightening issues.

“CRR is a part and parcel of RBI's monetary policy instrument so any cut in CRR would indicate a reversal of its monetary policy.

“But RBI does not want to give markets that indication yet since it is still not comfortable with the overall inflation figures despite moderation in food inflation,” he added.

The Standard Chartered Regional Head of Research, India, Dr Samiran Chakraborty, said: “The liquidity situation would definitely warrant some action from the RBI. We think a judicious mix of Open Market Operations and CRR is what the system requires now hence we are expecting a CRR cut by 50 basis points. However, markets are divided on this as RBI has preferred OMOs in the recent past rather than CRR cuts to manage liquidity constraints. So such a cut has not been completely factored in and may come as a surprise to a section of the market.”

Some others say that it is RBI's long-term view that the market will watch for.

The Chief Economist, HDFC Bank, Mr Abheek Barua, said that the markets are not expected to experience an immediate impact with the expected status quo announcement, but they would be looking more at the rhetoric and RBI's commitment to future easing of the monetary policy.

“The most important thing would be the tone and tenor of RBI's statement on what emphasis it gives to easing monetary policy over the course of the year,” agreed Dr Chakraborty.

> manisha@thehindu.co.in

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