RBI followed Fed into the ever present snare of having lost the confidence of the markets when it decided to recalibrate repo rates while decreasing MSF rates to 9.5%. The Repo rate at 7.5% in fact allows the 200bp cover on the normal MSF as it now stands exactly at 9.5% but the markets were spooked by an anti inflationary stance from the Central Bank blocking out possiblities of growth returning in the immediate future.
RBI has in the meantime further eased intra day trading on FX limited for banks along with the extraordinary increase in MSF and Bank rate last month. The Reverse Repo rate is also notified to 6.50% and though the bank rate has not been updated, it has been notified to 9.5%. Unfortunately with yields pulling away sharply to 8.3% levels despite their being room to move to 8% levels after the policy announcement, it means markets and inflows are now gong to try and make economic judgments all over again and with no other policy action forthcoming that could fiscally pressure India all over again ahead of the tightening in December
Daily CRR has been reduced to 95% from 99% allowing banks a little more flexibility but CRR and SLR together still account for more than 23% of the Banking deposits
Changes to liquidity rates can be effected further at any time before or after he next policy review. The Mid quarter review sees to balance the good monsoon’s impact as he negative outut gap now expected with the increase in risks on CAD and inflation
RBI’s stress on WPI seems unwarranted at ur end esp wit Crude levels coming back to manageable levels even as they go down further.
USA: 1 866 746 2133
UK: 0 808 101 1573
Singapore: 800 101 2045
Hong Kong: 800 964 448
INDIA Dial In : +91 22 6629 0341/+91 22 3065 0128
- Full text: RBI Mid-Quarter Monetary Policy Review (ibnlive.in.com)
- RBI hikes repo rate, loans to cost more (rediff.com)
- After Fed surprise, markets await liquidity easing by RBI (dnaindia.com)
- All eyes on Rajan as industry seeks rate cut (news.in.msn.com)
- All eyes on Raghuram Rajan as industry pitches for rate cut (profit.ndtv.com)