consequent reduced inflation will lead to a strengthening rupee which will make imports cheaper. The recent stability in crude oil prices lessen our worries on the CAD deficit front to some extent and will help preserve our foreign exchange reserves. Constricting liquidity will also regulate money supply to some extent and reduce exchange rate volatility.
Equity markets have been fickle in the recent weeks and remain tricky yet. So for everybody, especially retail investors, caution is necessary this quarter. As someone said, it is a good thing to learn caution from the misadventures of others. Of course, there are several factors besides interest rates which determine the outcome of the economy and hopefully a favourable interplay of these forces will give us cause to cheer in future though I suspect that a strengthening US dollar in this quarter will take some of our options off the table. It is also fair to say that just because tapering of quantitative easing in the US is imminent, it does not automatically follow that interest rates will also increase. But if they do then we could well be looking at a completely different set of issues to deal with and the current RBI move may suddenly seem benign in retrospect.
The author is president—retail distribution, Religare Securities Limited