As far as markets are concerned, interest rate surprises are a habit and analysts say RBI needs to work on its communication skills.
The central bank needs to work on its communication skills, say analysts.
MUMBAI: As far as Indian markets are concerned, interest rate surprises are becoming a nasty habit and some analysts say the Reserve Bank of India (RBI) needs to work on its communication skills.
A quarter-point increase on June 8, which came between scheduled meetings, wrong-footed markets for the fifth time in six decisions. In April, the market had prepared for an increase but the RBI kept its key rates unchanged.
“There have been surprises galore. There is no doubt about that,” Sanjeet Singh, head of research at ICICI Securities in Mumbai, said, adding unexpected moves created market volatility.
The benchmark 10-year bond yield rose 15 basis points the day after the increase, and is hovering around a 4-year high of 7.92% as the market frets about government borrowing and whether to expect another move at a July review.
The RBI governor Yaga Venugopal Reddy defended the June decision, saying global factors had to be given more weight than before and that constrained him from setting out a clear path. But his explanation did not please everyone.
“If the central bank blames global factors for the inconsistency in the way it indicates future direction, it is hard for the market to swallow,” said Shahab Jalinoos, senior currency strategist at ABN Amro Bank in Singapore. Communication was smooth in countries such as Thailand, he said, adding: “India’s base rate policy is harder to fathom.”
Some analysts saw the US Federal Reserve as a key influence for the June move, and one which will remain strong as Asia’s third-largest economy opens further.
“In our view, the decision to raise rates between scheduled monetary policy reviews was driven by changing global interest rate conditions, particularly in the United States,” wrote JM Morgan Stanley economist Chetan Ahya in a research note. Since India’s previous rate rise in January, the Fed has put up its key rate three times and may do so again at the end of June. US rates now stand at 5% while India’s benchmark rate is 5.75%.
Reddy, speaking two days after the decision, said he did not want to be out of sync with other central banks although the Fed was not the most important factor.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}