Another rate watch

Updated: Oct 31 2007, 10:10am hrs
After the credit policy announcement, the market now watches out for another crucial announcement, this time emanating from the US. After the 50 basis point rate cut in September, the FOMC meets on Wednesday to decide on the next course of action. According to a Bloomberg Financial Markets study, market denizen have pegged a 69% probability on a 25 basis point (0.25%) cut in the Fed rate and a 22.5% chance that the rate cut would be in the range of a 50 basis points, like the previous cut.

There is only an 8.5% chance that Bernanke would not touch rates at all. However, several fundamental factors, like high crude prices, may lead the Fed to rethink a cut in rates. Foreign institutional investors are waiting in their wings for clearer signals to emerge.

This is clearly seen from the fact that they have managed to keep their interest in the market low for the past few days. They were net sellers on Monday and also on Tuesday in the previous week. Even their buying is subdued. It is the Indian institutions that have actually pushed the market beyond 20,000, reckon trade experts. A 50 basis point rate cut could again push up the Sensex to new levels, a 25 basis point will be in line with expectations and no rate cut by the Fed could see some widespread selling. Chartists believe that a pull-back from this position could even see the Sensex take a 10% correction by Diwali. All in all, the run up to the festive season will sparks flying around. Volatility is expected to be at its highest in the coming days.

Contributed by Yagnesh Kansara and Akash Joshi