RBI's changed stance is a bit confusing: Nilesh Shah, MD, Kotak AMC

Nilesh Shah, MD, Kotak AMC, has expressed surprise at the RBI's stance when inflation projection has been lowered. He spoke to ETNow.

Edited excerpts:

This (RBI's policy) is coming as a big disappointment. That is spooking the market right now. The markets would have been much happy if they would have just moved on the rates this time itself?


So at 6.50 per cent repo and before credit policy 8.15 per cent 10-year G-Sec, there was a spread of almost 165 bps. When I last checked, 10-year yield was 8.05 per cent, that is 155 bps. So that is clearly factoring in at least 3-4 rate hikes from the RBI.

Now change in stance means rate cut is out of the table. When the RBI was expecting 5 per cent inflation in first quarter of FY20, you were in neutral stance. You are in hawkish or calibrated tightening stance, which means rate can be raised or rate can be maintained stable, but no rate cut.

So normally, lower inflation should result in a higher possibility of a rate cut. Here, in this change of stance, it is a bit confusing that when your inflation projection is lower, why is the stance changing.

For the equity market part, from interest rate perspective, obviously there is connectivity from the currency market. When the rupee depreciated straight from 73.50 to 74, there is bound to be natural reaction in the equity market.

My guess is that we will have to allow people to mull over the credit policy and the press meeting and take a fresh stance.