Rajan's dovish post-policy statement did come as a surprise: Jayesh Mehta, BofA-ML

In a chat with ET Now, Jayesh Mehta, MD & Country Treasurer, Bank Of America - Merrill Lynch, talks about the RBI policy. Excerpts:

ET Now: Your thoughts on the RBI policy?

Jayesh Mehta: While others are saying there were no surprises in the policy, I for one found a little surprise and a pleasant one at that.

Even though there was no rate cut, the post-policy conference was very dovish. Some people did ask questions about transmission on the 10-year yield. It was the first time I heard Governor Rajan talk about the 10-year yield which, he said, would eventually come down, which is a great thing.

There have been 125-bps cuts, but there has been hardly any change in the 10-year yield. At some point of time, these cuts should reflect on the yield. Eventually that would come down.

There are other measures too. We were actually buying foreign currency assets; so there was no local asset-buying. But that will also happen if at some point of time the flows slow down. So, that was the pleasant surprise I had.

Coming to yuan's inclusion in the IMF basket, it is more or less factored in. Of course, in the medium term there is an expectation that if they need to get more open in their capital account, there could be further depreciation. When that happens, it will temporarily impact our market and currency.

But the rupee is fairly priced in terms of range. The current 64-66 range should be eventually our benchmark. Having said that, this month has not been great both globally and locally. December being the year-end month, it will be a thin market which will create amplified volatility.

Looking at all this, we are a little bit restrained. But I will still look at the very dovish post-policy statement.