Mkt will look to `language` of Policy Review statement

``All eyes are on the RBI Policy Review scheduled for Friday 29 January. While the market turns apprehensive prior to any RBI Policy Review, the period prior to the Review this time is all the more significant as there are expectations of rate action from RBI. This run-up period to the Review is slightly different from the earlier ones, in that while there are apprehensions of rate hike (s), yield levels have actually eased this week. The background to this is that the market had already discounted the possibility of rate hike (s); in fact in December, there were rumours of an impending CRR hike. This week, sentiments have improved due to the reasons discussed above,`` said Joydeep Sen, VP, Advisory Desk (Fixed Income) BNP Paribas Wealth while opining on the trends of equity market for the coming week (Jan.25 - Jan.29, 2010).
``On the expectation of rate action in the Policy Review, the possibility of a CRR hike of 50 basis points has been strongly discounted and some liquidity control measure is due anyway. There could be an announcement on MSS in addition to CRR hike.`` he said further.
``The action being debated by the market now is whether it is the right time to signal a rate hike in the economy by hiking repo / reverse repo rates. Strong GDP and IIP growth and galloping inflation have made a case for rate hike whereas sluggish credit off take and the contribution of the stimulus packages to GDP growth make a case for delaying the rate hike to, say, April. Signal rate hike is the one variable in the Policy Review that will be keenly watched by the market. If RBI hikes it now, it would not come as a total surprise, but may be a mild negative for the market as consensus is yet to be developed.``
``Market will also look to the `language` of the Policy Review statement i.e. the hints given on the future course of action on rate hikes and targets on economic parameters like inflation, growth, M3, etc.`` he added.