The favourable inflation trajectory may prompt RBI to hold rates at the next week policy review, feels senior general manager & head, Markets Group & Proprietary Trading Group at ICICI Bank Shilpa Kumar. In an interview with Aparna Iyer, Kumar said given the policy rate outlook, bond yields are unlikely to breach the 8.90% level in the 10-year tenure and the Indian rupee could see an extended stability around 60-62/$ in the short-term. Excerpts
What are your expectations from the policy and how have you read the economic indicators?
If we look at core inflation, it has been largely flat except for WPI. If nothing changes, one may expect RBI to hold rate. We are awaiting guidance from the monetary policy committee. Our expectation is that inflation would move downward, both CPI and WPI headlines. By March, we could see closer to 9% CPI and 7% WPI. Core, however, is proving to be stickier, and we expect it to be around 8%. We also need to assess the situation based on what the Urjit Patel committee chooses as an anchor.
Do you think data have vindicated the RBI’s move to hold rates in last policy?
Firstly, the governor was pointing out to the disinflationary forces and said we need to let these play out. Secondly, we should not respond to the sharp food-driven changes in inflation. While RBI continues to remain vigilant on inflation, it has re-emphasised the disinflationary nature of the growth trajectory as well as the fact that inflation could come down. RBI was simply saying the process had started and we should wait for that to reflect in the headline numbers. And that had happened. It was indeed good to wait.
What is your outlook on bond yields?
The market will stay range bound. Only thing one can say is that the trigger for a sharp upsurge in yields is relatively muted. The market is seeing not too many negatives on inflation up to March and, therefore, we may not see yields moving dramatically beyond 8.80-8.90%.
Given the stability of the currency, shouldn’t the cap on repo borrowings be lifted?
The cap on repo tender is here to stay and not to protect the currency anymore. It is here to stay because it is giving a series of measures by which the price and quantum of liquidity can be controlled. Now, the lessons in last few quarters are that if the