The change in HTM ceiling conditions to 24% of SLR as the Central Bank indicated earlier through the pronouncements of outgoing Dy Gov’nor Anand Sinha last in 2012, was finally effected as part of the mid year policy review in the afternoon today. The no rate cut limitation in place because of the slow moving inflation data was attempted to be set off again by a cut in SLR to 22% of their NDTL and as banks are already sitting on much more SLR, at 26-28% (ET) the same is unlikely to cause banks to provide additional liquidity in the normal course. The banks can exceed the HTM holdings by extra SLR holdings as long as SLR holdings are 24% of their HTM category investments
As HTM ceilings of 25% can be exceeded now with a lower SLR limit of 24% however, the same may lead banks to get their SLR portfolio pruned earlier and thus hasten a little momentum to Indian GDP growth even as Private credit makes a comeback, apparently with a more finite ( improved from infinitesimal ) ratio of infra lending by banks and some non Real estate lending as well. Indian Services sector data will also likely surprise on the positive side following the similar beat in the UK though China slumped to its worst Services PMI in 5 years
The Rupee looks set to come back froma bottom as well, after some good news for the RBI governor in an otherwise expected sea of long faces on the missing rate cut, seen by the market as a clean signal to investors and a clear signal evincing the revival of the Economy. The markets posturing however is unlikely to break the market trend which has recovered to 7700 but is headed to 7500 in the coming fortnight after 7800 was ignored wilfully by the markets earlier last week.
The Indian 10 yr Gilt in the meantime has moved closer to the 8% Repo rate from the earlier neighborhood of 8.75% near the MSF rate from the Central Bank at 9% . As 10 year yields move further down below 8% ( likely >90%) banks may nevertheless bring down lending rates in an expanding market before the Central Bank gets to it and announces a couple of rate cuts in 2015 and hopes rise of a return to a 9% GDP rate for India once again
If anyone here attends the Analyst conference later tomorrow dowrite in with your commentary on the same.