“It remains to be seen if we are going to see some cooling off effect. So therefore not really getting carried away by just one print but certainly it is an eye-popping number and should have some sort of a market reaction today,” says Lakshmi Iyer, CEO, Kotak Investment.We did not really think that we would be addressing the high inflation print but here we are at a three-month high. What is your sense as to the number of 6.5% and what were the estimates that you were working with?
I think the market consensus was in and around the 6% range with the most bullish number being at about 5.6%. So by any yardstick or any metric clearly the number has come beyond the market comfort largely obviously aided by vegetables and of course cereal prices. Now cereal prices have seen an uptick. It remains to be seen if we are going to see some cooling off effect. So therefore not really getting carried away by just one print but certainly it is an eye-popping number and should have some sort of a market reaction today.
I think the market consensus was in and around the 6% range with the most bullish number being at about 5.6%. So by any yardstick or any metric clearly the number has come beyond the market comfort largely obviously aided by vegetables and of course cereal prices. Now cereal prices have seen an uptick. It remains to be seen if we are going to see some cooling off effect. So therefore not really getting carried away by just one print but certainly it is an eye-popping number and should have some sort of a market reaction today.
What could be that market reaction and does that change estimates materially with respect to the repo rate high going forward because 25 bps was expected to be the last one in this cycle? Does that change that assumption?
Well, yes and no, not completely changing it because there are a couple of things which we need to keep in mind. A) IIP which is a slightly lagged measure which one tracks from a market standpoint has been slowing down, we saw that number. Number two, is today it is very critical to see the US inflation number which also is showing a receding sort of a trend line and we have not really seen too much of an uptick. In fact, US yields were about 3.7 yesterday. So given all that, it does not seem to be a given that there is going to be a rate hike in April too soon to call it. I would still say it is a toss of a coin but I would say today markets could react a tad negative because the mood is a little bit sombre.
What is the outlook then on the laser focus that we have on the US CPI? What is it that we could expect on that front?
If you see last month, the inflation clearly came down in the US again. Powell made a statement a few days back that US inflation is clearly headed on the lower side and markets do not seem to be. You saw the equity markets were up in the US, you saw the bond deals were fairly okay at about 3.75, closer around 3.7%. So markets are not really expecting anything ominous outside in the US this evening. So if that comes pretty much in line with expectation, I think markets should kind of settle in either which ways we look. Looks like we are towards the fag end of the rate hike cycle in India. It is a matter of 25 bps now or go for an extended pause.
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