Two days, two central bankers catch markets on the wrong foot

Sep 21 2013, 09:09 IST
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RBI Governor Raghuram Rajan, flanked by deputy Governors, addresses a press conference after his maiden policy review meeting at the RBI headquarters in Mumbai. (PTI) RBI Governor Raghuram Rajan, flanked by deputy Governors, addresses a press conference after his maiden policy review meeting at the RBI headquarters in Mumbai. (PTI)
SummaryWhen markets were anticipating a positive move after US Fed decision, RBI raised repo rate.

On Thursday, investors were prepared for the US Federal Reserve to bite the tapering bullet and the only factor that worried them was the quantum of the cut in the bond-buying programme. But, Fed chief Ben Bernanke provided an unexpected breather and the Indian markets, too, rose beyond expectations.

Related: RBI ‘cuts’ its rates, banks may hike theirs

The following day when the markets were anticipating a breather from the Reserve Bank of India, following the US Fed’s action, newly appointed Governor of the apex bank, Raghuram Rajan, chose to look the other way and raised repo rates leading to dip in the markets. The fall wiped off most of the gains witnessed on Thursday and the BSE Sensex fell by 1.9 per cent or 383 points to close at 20,263.7 on Friday.

Editorial: RBI wastes Fed moment

In a matter of 48 hours two central bank chiefs caught the markets on the wrong foot and the reactions suggest that it has not gone down well. A leading market expert with a global financial services firm said that the Fed has lost some credibility with its move.

“Over the last 20 years the Fed was trying to become more and more transparent and they started giving direction, comments and even shared the minutes of their meetings as they wanted to be taken seriously. However, this time, they kept talking of tapering and have surprised all by not going with it. People would now not take their words but wait for what they do,” said the market expert.

“He still seems to be under the influence of rupee volatility and wants to stabilise it and control inflation. But the economy is getting from bad to worse and a hike in interest rates may affect the corporate sector and is likely to be complex for growth,” said CJ George, MD, Geojit BNP Paribas Financial Services.

There are others who feel that by raising the rates the governor has also quietly communicated that he is nobody’s man.

“While he is looking at continuing with Subbarao’s policy, he has also quietly passed the message that he has a mind of his own,” said a Mumbai-based expert.

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