THE INTEREST RATE CYCLE REVERSAL

While confirming that the RBI is now increasingly likely to focus on economic growth in its Monetary Policy pronouncements, RBI Deputy Governor Dr Subir Gokarn is reported to have told a Business News Channel that, "We are basically saying that the cycle has peaked. I don't think in any of the Governor's statements or in our guidance, we have made any explicit mention of actually starting to bring rates down,"  He further is reported to have said that the likelihood and timing of possible Rate Cuts would " depend upon how the inflation momentum is playing out".

When monetary policy easing does begin, the RBI could use instruments such as the cash reserve ratio, which "will help not only from the monetary perspective, but also from the liquidity management perspective," Gokarn said.

"But till we arrive at that point, the (open market) operation provides that sort of a tactical instrument by which we can infuse liquidity to ease pressure in the money markets without necessarily signalling a very explicit change in the monetary policy stance," he said, referring to open market bond purchases by the RBI.

Going by the easing Inflation Macros as well as the deluge, so to speak, of Public sound bytes
put out by the Economic Policy 'Powers that be' of late (whether it be Dr Gokarn today, Dr Rangarajan and Kaushik Basu earlier) it does seem very likely that we could surely see a CRR cut on January 24 2012 in the RBIs Monetary Policy Review. A Repo Rate Cut may be too much to expect but a CRR cut as well as a renewed vocal dovish stance is very much likely. Anyway, fingers crossed!!

Data points to watch out for:

• JANUARY 12 2012:  November factory Output data
• JANUARY 16 2012:  December inflation number
• JANUARY 24 2012:  RBIs Monetary Policy Review.