RBI policy, reforms likely to drive markets next week

NEW DELHI: The government’s action on pending economic reforms and the Reserve Bank of India’s policy review next week are likely to dictate the directions for the India markets.

The markets are likely to move in a range ahead of the RBI’s rate review on Tuesday. Most analysts expect the central bank to leave interest rates on hold and say that the RBI could instead cut the cash reserve ratio.

An unexpected jump in industrial output and lower-than-expected inflation numbers have reinforced hopes that the RBI could start cutting interest rates in January. Further traction on reforms is also anticipated as the winter session of Parliament is due to end on December 20.

A PTI report quoting RBI Deputy Governor K C Chakrabarty said the Reserve Bank expects inflation to moderate further in the next 2-3 months, that may lead it to cut interest rates.

According to a recent poll by Reuters, the Reserve Bank of India is expected to keep interest rates unchanged on Tuesday, with respondents split over whether it will cut the cash reserve ratio (CRR) for banks. However, expectations are near-unanimous for an interest rate cut in the March quarter.

The government has already approved a slew of fiscal and economic reforms, but bills are pending on banking, pension and insurance.

Key factors/Events to watch:

On Saturday, Prime Minister will attend an industry event in New Delhi.

On Tuesday, RBI will review the monetary policy. Then, Parliament’s winter session will end on Thursday and India hosts ASEAN summit.

On Friday, weekly forex reserves, bank loan data will be out.