The Federal Reserve's stimulus tapering has been the biggest preoccupation in the minds of traders currently, as they dread a slowdown in economic momentum if the stimulus is prematurely withdrawn.
Thus any big moves be made only post decision on the itinerary for the withdrawal of stimulus is known as the 2-day FOMC meeting that has gone underway today and is likely to end soon and thus make big moves only post seeing the tapering programme as it will have global impact.
The outcome of FOMC meet is going to cause a big impact on the stock markets and Indian markets are not going to be immune from it as thereafter our own RBI credit policy meet is going to take place. With inflation on the higher side, it could have become more difficult for the RBI to consider any degree of reversal on the MSF policy as this might be taken by the market as a signal for easier monetary policy stance by the RBI. Thus, we expect the RBI to remain on guard on September 20, keeping the MSF at 10.25%. In case the RBI wants to bring down the MSF from the current 10.25%, it could simultaneously be met with a hardening interest rate bias via increasing the repo rate. However, a rethink towards providing some operational flexibility to banks on the CRR side could be in order.
Thus we feel that Wait and Watch is the best strategy before the most sought after FOMC News is out in the market. You can check RBI credit policy view point here.
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