FII'S VIEW ON 24TH MEETING OF RBI

With the RBI just increasing their key lending rates, repo rate and CRR this Friday, FIIs are expecting one or two more rate hikes, not necessarily on April 24(When annual policy statement for 2007-08 will be announced), but maybe after 2-3 months. RBI hiked repo rate by 25 bps to 7.75% with immediate effect.
Experts feel that the RBI will not will not play around with the key lending rates in its annual policy statement for 2007-08 on April 24, as it already took some measures to tame inflation.
FIIs, like Adrian Mowat, JP Morgan, see that the problem of overheating is likely to keep the Indian equity markets underperforming.
Executive Director and India Economist of JM Morgan Stanley, Chetan Ahya forecasts one more rate hike and expects one to see a tightening of monetary policy in the next 12 months.
A slowdown in global capital flows will reduce the pressure on RBI to tighten aggressively, either in the form of CRR or repo rate hike, he said.
Ahya said, “one should expect at least 1-2 more rate hikes. But the situation is dynamic; if we get more capital flows, like we have got in the last seven weeks, one could expect RBI to continue to tighten at least in form of CRR hikes going forward, to neutralize those capital inflows.
I would say the probability of the April rate hike has definitely reduced in the near-term. April 24 should kept out of the way. We should now look at whether RBI is going to do more rate hikes or not. There are probably more rate hikes - not necessarily on April 24, but maybe after 2-3 months, depending upon how the macro conditions pan out after that."
He said that the probability of second rate hike is very high because till now whatever measures RBI has taken, it has not seen any evidence of a slowdown particularly in the form of credit growth.

"The last number we have seen is still at around 29%, which is pretty much close to an all time high. So basically, RBI will probably continue to tighten with at least one hike and a probability of a second rate has increased," said
Ahya.