GREAT EXPECTATIONS - LIKE ALWAYS!

By Ruma Dubey The spotlight is back on Mr.Subburao. Will he? Or won&rsquo;t he? These are the two questions vexing the markets. With inflation in the negative over the past three weeks and November IIP numbers coming in better than expected, the general feeling is that the RBI can now start softening its dovish stand. But that is the &ldquo;expectation&rdquo; though it could be much far away from what Subburao has in mind. Currently, the market has the daily trigger via Q3FY12 numbers from India Inc. And till RIL announced its numbers on Friday evening, the numbers from the IT biggies &ndash; TCS, HCL Tech and Wipro pleasantly surprised everyone with good numbers. Better-than-expected numbers from the private sector banks &ndash; Axis, HDFC Bank also helped buoy the moods. These numbers have raised expectations of a good Q3 and maybe a feeling of all being well. But RIL numbers kind of punched reality in, making it clear that things are not really as great, there are creases and these could only get rougher as more numbers come in. The expectations are mixed &ndash; some feel that repo rates might see a 25 bps cut while many feel that rates might remain untouched though CRR could be lowered. China reduced its CRR by 50 bps in December and since then, there is great expectation that RBI, following China will cut CRR by 1%, which will infuse liquidity to the tune of at least Rs.60,000 crore into the system. There is the Euro crisis and inflation is showing signs of ebbing, so pressure is mounting on RBI to ease liquidity by cutting CRR. But are these reasons enough? In India, manufacturing prices continue to rule high and remains a cause for worry. Thus for India to take a stance of going slack now, when prices are finally showing signs of coming down, might not be the best thing to do. Just because a neighbor cut rates, it does not mean we too should follow suit. In economics, &lsquo;keeping up with the Joneses &lsquo; policy will just not work. RBI is trying to infuse liquidity into the market by buying government bonds through open market operations. Currently, the market is borrowing over Rs 1,25,000crore from the RBI and to bring down this borrowing, RBI will have to buy government bonds worth Rs 60,000 crore in coming weeks. This, in a nutshell means, RBI will be buying bonds to finance around 15% of Govt&rsquo;s borrowing. And the Govt is borrowing like there is no tomorrow. Other than raising the borrowing limit from Rs 1.67 lakh crore to Rs2.2 lakh crore in H2FY12, it has sought Parliament&#39;s approval to spend Rs 63,000 crore more than budgeted. So how much bonds will RBI buy to infuse liquidity? Undoubtedly, these are tough times for RBI and any decision is not going to be easy. A pause, in all likelihood is what RBI will take. It might choose to wait and watch rather than do things just because a neighbor did it. Yes, cutting CRR might currently be the best way to infuse liquidity but Subburao is known to follow his own mind. Well, the suspense on Credit Policy continues. Yes, Tuesday might be another day for a pause but you never know!