Hope is not a Strategy.Once you complete reading this article, you will understand why I have written about hope.The last policy meet of RBI for the year is happening today.And there is lot of speculation and rumors doing the rounds about the rate cuts,unchanged rates or even a rate hike.
Let us consider different scenarios.(Kindly read all the scenarios before taking a trading decision).
A rate cut.
Should a rate cut be announced? Yes.There is liquidity crunch in the system and the Banking system needs a adrenalin shot in the near term.What would be the after effects? There would be more cash flow, more loan disbursements as the rates are less.More Auto sales,more real estate sales.With the Central Bank taking all the necessary measures to bring fiscal deficit to the desired levels,it may announce a rate cut.
Unchanged Rates.
Should the rates be unchanged? Yes.Except China, countries like Australia,New Zealand, South Korea,Indonesia left their rates unchanged in the last policy meet.This is the last policy meet of the RBI in this year.So RBI may pause for the moment and shift to a wait and watch mode to see how things are shaping up and then take a decision in the next policy meet.
A rate hike.
Should the rates be hiked? Yes.With Rupee weakening to all time lows sending the cost of imports to the roof and with September's inflation revised to double digits and the November inflation still above the 9% mark(there are chances that it can be revised to double digits too). Normally inflation drops during the Winter season.But this is not the case this year.With the RBI curbing Rupee forward trades yesterday and it takes into effect immediately both for the domestic and Foreign traders, it indicates the fiscal deficit is blown out of proportion.Adding fuel to the fire is the 9 Billion Dollar error in the export data.So RBI even may take a hawkish stance and hike the rates.
Hawkish or Dovish, the strategy for the day is to wait and watch.Don't hope for any of the above scenarios according to your convenience and take huge leveraged positions.Why?? Yeah.You know it.Hope is not a strategy.
