The market is
currently not expecting another 50-basis-point cash reserve ratio
(CRR) hike and we also don't expect the same. The reason why we
don't expect any further tightening is because we feel the RBI has
already taken action on March 30, 2007, which was completely
unexpected, by increasing the repo rate by 25 basis points and the
CRR by 50 basis points.
Further the
inflation is expected to moderate going forward and the non-food
credit and money supply growth have also shown some moderation,
which favour a status quo. If the RBI goes ahead and hikes the CRR
again it could be a setback for the markets.
Liquidity
management will remain high on the agenda for 2007-08, with the
policy rates such as the repo rate, the reverse repo rate and the
bank rate likely to remain unchanged.
The gross
domestic product (GDP) growth estimates for FY2008 could be in the
range of 8-8.5% while the target zone for inflation may remain
unchanged at 5-5.5%.
A curb on
foreign flows through the lowering of the NRI deposit rates to
make them less attractive and lowering the external commercial
borrowing limits may be undertaken to control capital inflows at
least in the short term as long as the inflation is above the
RBI's comfort zone.
Some mention
on the credit and fund flow to sensitive sectors like the
commercial real estate may find its place in the policy, as the
RBI is very concerned about the escalating real estate prices,
which could lead to an asset price bubble.
We feel the
RBI should avoid excessive tightening so that concern over the
economic growth potential in the next fiscal doesn't come under
serious scrutiny.