Bank Policy Tuesday: RBI Governor completes policy action

inflation
inflation (Photo credit: SalFalko)

With the forced liquidity constraints as the currency devolved on the nation in June ( after May 21 announcement) RBI was stuck in the middle of a rate cut leg of its policy to encourage growth. Already hampered by banks using Central Bank liquidity to the extent of INR 2 Tln instead of market, the Central bank’s rate hike onsequently in September even as the MSF hikes were redacted and brought back to the normal line may finally break the back of the markets on the verge of a bullish move from 6200.

The only inflation out of control however is the Food inflation which may not respond to any rate hikes and this rate hike may just be a mechanistic response continuing since Duvvoori Rao demitted office to stabilise the higher rate environment, in which case India may old these levels for a good six months, and in developed markets this new intermediate leg could have lasted years, till the rate cuts can begin again.

Meanwhile consumer staples will continue to see large double digit price increases to correct 2-3 years of suppressed marketing budgets and pricin pressures unrequited to keep basic sales growth alive in consumer markets

The announced policy steps however will increase bank rates and as retail lending has reounded such increases are largely going to be absorbed by consumers and however will have had debatable impacts on fueling furthr inflation now controlled by bank rates. NBFC business is already looking better in consumer durables with a clampdown on 0 interest loans and while that may not segment the market in favor of first time durable buyers that have been an absent quantity fooling marketers and policymakers, it will continue to better control the negative output gap with more advantages for NBFC lending even for banks that have already relied a fair portion of their portfolio on the sector at the expense of obviating the real winning consumer sectors or industry sectors winning n the changed scenario

RBI hiked rates 25 bp and MSF channel has returned to 100 bp over the repo rate clearing the path for a return to the Repo rate as the Bank rate.. WPI forecast has been banded to the central bank’s comfort zone as 6-7%. GDP growth is updatd to 5% for FY 2014

The banks lead the Nifty comeback post policy action as they assume the deed is done and currency will consolidate around 61-62 levels before going back to the trade deficit control led highs nearer 60-61 levels The sponsored rally ost policy is however blushingly even across non actors and non performers in the banks bunched with YES Bank, ICICI Bank and even HDFC Bank and Axis Bank. IDFC has recovered its morning deficit too. BOB is up 15 pointsand BOI is in the positive with Pharma/result candidate DRL also staging a mini rally. The short on LIC Housing ahead of results has also disappeared and tomorrow’s results are likely to see fat positives as sentiment needs a good build up and inflows ontinue to allow market makers to perform as such and the Financials are likely to reward investors who stuck through the unreasonable 2 months pre the last MSF related policy action. Further policy action unless embargoed by inflation is likely to stay with seeing the bank rate climb down from the current MSF 8.75% to the Repo rate of 7.75% ( The Revese Repo is 6.75% where  RBI issues new collateral securities)

 

India Morning Report: Banknifty swings up like a monster trade, already semi-retired

RBI head office, Delhi
RBI head office, Delhi (Photo credit: Wikipedia)

Sorry, I’d rather understand why the party for reduction in MSF and INR 17000 cr (INR 170 Bln)  of Borrowing added in 0.25% of the Deposits. The channel to the low repo rate of 7.50% is still 150 points after the cut and the 10 yr yields are not really expected to move south from 8.6% ‘except at the low rate of’ 50 basis points in the next three months it had already proffered before Rajan made the change.

Anyway, markets at least recognize or get their bank spokespersons/contacts to say banks are at ease again so the 5950 mark has come. already on the markets. The Upward potential is truly limited at this juncture, all the media noise budget (DAVP one mite bite) for showing activity in the Economy not making up for the spending cuts to stay in and the investments still a far way off.

However, markets per se are undervalued fundamentally with earnings positive thru the crisis except that they wait on such changes in fundamentals which are India’s bane for moving up while China gets a free look again just for having underperformed as it finds no legs in manufacturing worth reviving the Economy in goods production and of course the stat spin fails to take the big opportunity off the table

Rajan seemingly has made it clear he will be taking the Repo rate up again, and as the October meet approaches, markets will be equally quick to reach the bottom of the 5750 – 6000 range of the markets. the Repo rate at 7.50% already looks steep enough to me esp as trading markets stay idled to a high rate pre Taper.

I rather liked the Welfare flavor of August & September and wonder if it will come back again. At least its things we can do. The exchange rate is no good at 61.77, and hopefully its just waiting to go u to 60 levels as signs of others interested in the breakdown to 77-78 recede.

The inflation rate Formulatonomics of getting to that ratio as differential to ‘PPP’ are rather lost to most with a real India, Economics or Finance background though. You want PPP, you should go for a reference you can live with and that still counts as the Mac or the Pizza probably where we are definitely looking for a rate under 40 instead. Indian inflation would count as facts show as deadbeat deflation at 6% itself, as the Economy at 4% is almost a dead duck in the water ( in India references, it being the flat minimum of National activity)

Related articles

RBI eases short-term rates and liquidity with 50bps MSF cut; small banks gain (dnaindia.com)

India Cuts MSF Rate to Ease Cash Squeeze After Climb in Rupee (bloomberg.com)

Cut in MSF, RBI to monitor CAD and Inflation(WPI)- Bank Policy and Mid Quarter Review (September 2013) (awardz.wordpress.com)

India Morning Report: Crude down, Gold trade dead, MSF cut a real boon?

Boon Lay Extension
Boon Lay Extension (Photo credit: Wikipedia)

Sorry, I’d rather understand why the party for reduction in MSF and INR 170 Bln of Borrowing added in .25% of the Deposits. The channel to the low repo rate of 7.50% is still 150 points after the cut and the 10 yr yields are not really expected to move south from 8.6% ‘except at the low rate of’ 50 basis points in the next three months it had already proffered before Rajan made the change.

Anyway, markets at least recognize or get their bank spokespersons/contacts to say banks are at ease again so the 5950 mark has come. already on the markets. the Upward potential is truly limited at this juncture, all the media noise budget (DAVP one mite bite) for showing activity in the Economy not making up for the spending cuts to stay  in and the investments still a far way off.

Again, however, markets per se are undervalued excpt that they wait on such changes in fundamentals which are India’s bane for moving up while China gets a free look again just for having underperformed as it finds no legs in manufacturing worth reviving the Economy in goods production.

Cabbage Market
Cabbage Market (Photo credit: Wikipedia)

Rajan seemingly has made it clear he will be taking the Repo rate up again, and as the October meet approaches, markets will be equally quick to reach the bottom of the 5750 – 6000 range of the markets. the Reo rate at 7.50% already looks steep enough to me esp as trading markets stay idled to a high rate pre Taper.

I rather liked the Welfare flavor of August & September and wonder if it will come back again. At least its things we can do. The exchange rate is no good at 61.77, and hopefully its just waiting to go u to 60 levels as signs of others interested in the breakdown to 77-78 recede.

The inflation rate Formulatonomics of getting to that ratio as differential to  ‘PPP’ are rather lost to most with a real India, Economics or Finance background though.

You want PPP, you should go for a reference you can live with and that still counts as the Mac or the Pizza probably where we are definitely looking for a rate under 40 instead.

Indian inflation would count as facts show as deadbeat deflation at 6% itself, as the Economy at 4% is almost a dead duck in the water ( in India references, it being the flat minimum of National activity)

India Morning Report: Is 5600 the new 5000? Rupee is holding 65-66

With the  Rajan effect crystallising over the India investor skies, a new definition of India’s winter seems to be up as global liquidity withdrawals accelerate availability of funds from the exodus fro US bonds and a small portion is likely to start trickling back sooner than one would think.

The earlier expected recovery cycle threw up banks, infracos (IDFC, Power NBFCs ), ITC, Bharti  and Bajaj Auto and others in FMCG and Consumer Goods sectors and more or less they will make the bedrock of larger EM portfolios with or without MSCI index dependencies. Metals are good for this cycle and Tata Steel can still make it even if Global demand does not respond the way it is expected to recover in the end

Weightage maintenance is also in play and at 5600 levels that means sizable new buys fr funds that sold just a week back. The volatility till yesterdy will continue to affect timing of new investments and most invstors ahve oodles of time to play out their vaalue and growth leaders in the portfolio .

Now did I hear someone mention Rajan has to perform? Rajan would not be credited with bringing individual accountability to the RBI’s various senior officials but it is happening as we speak and Rajan hmself would know difficulties of thinking of implementing structural reform before May 14 decisions are out for India inc. The rajan effect itself was really areiteration of everyone’s agenda since 2000s , and the currency responding after controls on speculation were lifted is the unnoticed vote of confidence for India as a destination. ECB funding should be proceeding on A+ paper and equity QiPs

 

India Morning Report: Rajan appoints committees for everything, Rupee to discover under 66 levels at open?

The change in Monetary and Fiscal policy stance is fairly well obscured by the need for consensus but with Overseas Direct Investments retained at 400% of Net Worth and removal of hedging restrictions by allowing rebooking for both Exporters (50%) and Importers (25%) or Dollar Swaps at 100bp better rates with the Central Bank for FCNR deposits till November in existing schemes could just be a sign of old policy pieces being consigned to vestigial life, though such reform reaams have come and passed India Inc by for almost millenia, and at last 67 years f independent India. However, these limit relaxations typically let th Rupee sales accelerate into a new orbit usually and that is definitely unlikely

as predicated last week, S&P, Moody’s have been watching these developments only as a fallout of their prognostications of India’s twin deficit weakness and are much reiterating their last assessment when S&P had recommended a negative outlook based on a 1 in 3 chance of downgrade which USA had barely avoided. the Ratings firms are likely to be under pressure to change their ways and the step difference between Asia, Europe and probably from office to office of the agencies which reflects a woefully inaccurate picture in ratings , that are still catching up with munis and structured products n US and Europe and illiquid CDS in Europe and Asia

IMF Economic Counselor and Research Department...
IMF Economic Counselor and Research Department Director Raghuram Rajan briefs the press on the World Economic Outlook on April 13, 2005 at the International Monetary Fund Headquarters (IMF), Washington, D.C. (Photo credit: Wikipedia)

The Land and Food Bills have passed both houses seemingly without riposte and the Pension and Insurance Bills are next. However, back on Rajan’s first day, some other welcome proposals include allowing NBFC Prepaid cards for payments, starting national Gyro payment services (Nachiket Mor -Inclusion)and Rajan himself sitting on the committee to decide stringer  norms for NPAs and concerns on restructuring yielding more NPAs than normal accounts. Banks will be investing lesser in Gilts and SLR rates going down could be still a long drawn process while Branching being freed may be some incentive for Foreign banks also to execute subsidiaries. Most of these proposals will be overseen by various Deputy Directors an ex Governor Jalan will head the committee on  new licenses due soon after Jan 2014 when Anand Sinha leaves.

Markets otherwise keep responding to new signs from metals after a record comeback month in July/August and the banks will show their hands on the policy through their price movements the remaining two days of the week. Liquidity restrictions are still on and India is fighting the worst currency crisis of the last six generations

Indices again moved the entire range crossing 2% from 5340 to 5450 levels by the close and Wall Street enjoyed one of its best jumps overnight n Auto sales data. European PMI cements the days of crises as past though growth is yet patchy and China is the pod the global investors still look to, despite their repeated equity failures in the market

 

Up ↑

%d bloggers like this: