Markets will sing the Raghuram Rajan song on Tuesday: watch out closely

Certainly June 7, Tuesday is going to be a day of significant happening in the stock markets in India even as Reserve Bank of India (RBI) will come up with its review report. Though the markets have discounted any rate cut factor amid speculations making rounds that the apex bank will take a wait and watch policy till Fed makes any changes in the existing rate structure--the major speculation at this time is whether Raghuram Rajan stays back as the governor of RBI or opts out as his term ends three months from now in September, amid political controversies. Rajan is expected to address the media at the headquarters of RBI in country's commercial capital, Mumbai on Tuesday. So far he has maintained a tight-lipped state whenever asked questions on his choice of continuing with RBI even beyond September, people close to the development believe Rajan may at least indicate his future plan on Tuesday. Momentum of the stock markets is definitely going to depend a lot to each of the words he speaks on June 7 facing dozens of representatives of both national and international media, scheduled to attend the much-awaited meet.

Amidst a backdrop of BREXIT and interest rate hike by US Fed, the RBI policy on interest rates will be keenly watched as stakeholders will be interested to understand what the proactive RBI governor does to minimise the volatility caused by the said external events. 

Following factors may weigh the decisions of the governor :- 

1. Rise in retail inflation measured by CPI (Consumer Price Index) in April

2. US fed rate hike 

3. Unpredictability of Monsoon 

4. BREXIT (UK exit from the European Union) 

With mixed concerns over several uncertainties at global level and confusing growth signals at domestic levels the rate cuts may at best will be left untouched even though the experts believe there is a room for further 25 basis points cut in FY17. Consumer price index (CPI), a measure of retail inflation, jumped to 5.39 per cent for the month of April 2016. For the month of March the inflation was at 4.83 per cent. 

Rajan in his tenure has played conservative role and has not fallen to pressure from the finance ministry or even the business community  who would have loved to see interest rate at much lower rate than where it is currently. Exports have fallen consecutively for 18 months and exporters blame it to Rajan's policy of holding rates higher which leads to US dollar and foreign money inflow into the country thus increasing the demand for INR (Indian rupee), which in turn keeps INR stronger that keeps Indian exporters at a disadvantage to its neighbour competitors.

Several economists believe the global slowdown has affected the Indian exports and merely policy rates is not the reason for such sliding exports. Rajan's strong personality and his ability to not give in to pressure from various sources has allowed him to focus on stability and inflation rate which many believe is his biggest achievement and that is exactly what is cheered by foreign investors.