Raghu Rajan retains the rhythm on monetary policy tunes!
Policy rates unchanged and liquidity retained, but 2% of NDTL to be released in phases on baby-steps reduction in HTM to be at par with SLR by end of 2015. No significant impact on Money/Bond markets: Short term Money Market curve to stay elevated and 10Y Bond yield at upper-half of long term focus zone of 8.15-8.65%. The policy has done no major favours to Equity and Rupee. While there is no reason to review NIFTY trading range from 7850/7900-8150/8200, Rupee is at risk of adjusting to part of time-decay for shift of focus from 60-62 to 61-63 into mid 2015. This is seen as win-win for all stake-holders, importers & foreign currency borrowers on one side and exporters & foreign currency investors on the other side. It will also result in avoidance of excessive one-way build-up of open exposures.
Bottom-line (and take-away) is that shift into dovish monetary policy stance is not round the corner and Rupee reflecting the REER in alignment with dollar value against EM currencies seen to be the preference without getting into target seting.
Overall, RBI's stance is sensible with no urgency to be seen as bold and aggressive! Being conservative (and cautiously passive) till feet firm on the ground is the street-smart character of Raghuram Rajan!
Moses Harding
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