Comment on RBI's Monetary Policy - Vikram Kotak, CIO - Birla Sun Life Insurance Co. Ltd

1Q FY11 Monetary Policy Preview

We expect 25bps hike in Repo and Reverse Repo rates in RBI's upcoming monetary policy meet. There are three key reasons for not expecting a higher quantum of hike:

* Firstly, recovery in the developed world still remains anemic in nature and there is a lack of confidence on self-sustenance of recovery process on removal of stimulus measures.

* Secondly, domestic inflation, although high, has most likely peaked. Going forward, softening outlook on global commodity and energy prices, expectation of good monsoons, record stock of food grains with FCI and favourable base should result in gradual decline in inflation.

* Thirdly, with broad-based capex recovery still not underway, any undue rise in cost of capital at this juncture will hamper capex cycle. Further, in the current scenario of tight liquidity it will also have an adverse impact on credit growth and short-term rates.

Hence, we do not expect CRR hike as system liquidity is already in negative terrain.

Source : Equity Bulls

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