Building expectations for a rate hike top-off

NEW DELHI/INDIA, 16NOV08 - Klaus Schwab, Execu...
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With the noise for credit growth gladdening the hearts of the stock markets and that of offices in the RBI, Bankers have already announced that further rate hikes in India would likely be counter productive as they suggest for and on behalf of the RBI that the inflation cycle itself has already peaked. Though my economist brain refuses to accept the same(and my daughter is one too!), one can see that the knock to commodities from the IEA ‘s interjection worth 60 mln tonnes and the down tick in China’s manufacturing output has really dealt a death knell to the commodities inflation cycle.

However a retail inflation uptick is more than likely and the rates are not coming down for a long time, increasing the probability that this is merely a delay in further rate hikes of even a 100 bps further down the road. Also the Credit growth thru the NBFC and directly has been increasing RWA assets in Construction and Real Estate. While someone like ICICI Bank with 19.4% CAR may well go oall out for such RWA to soup up margins, the others may not be that lucky esp with SBI continuing 2-3 quarters of delayed provisioning from 2010 For May Real Estate has grown 24% directly and thru NBFCs may have added another half a trillion in credit and 20% more for RWA

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