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

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.

RBI Mid Quarter Review 11 am  

RBI Media(1pm) and Analyst(3.30pm) Webcast –

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Bank Policy Tuesday: Policy Rates unchanged, CRR cut by 0.5%

Banks might pull back on the liquidity window, Apparently RBI was not worried on the missuse of the additional liquidity  in the constrained liquidity conditions. India’s CRR is now less than 6% at 5.5% and is likely to stay at the lower rates

FY12 GDP forecast cut to 7%. Inflation target of 7% likely to be met but fuel and imported inflation remains high

NDTL Values are nearer $1.2 Tln or INR 64 lakh crores, releasng 32,000 crores

RBI ofcourse still talks abt Manufactured pdts inflatn as area of concern

PMEAC may have bridged MOF expectations to RBI despite a clear mandate to RBI on the subject. We have advocated CRR/SLR cuts to lower levels and many banks have even asked for abolition of CRR to a  lower global Reserve requirements ratio of less than 20% against the now 29.5% incl 24% SLR which has however been denied by the PMEAC , MOF and RBI and banks themselves keep more than the required in Central Baank securities over and aboe the 30%. As and when these securities are actually released, much more can be fed into liquidity which the Centrsal Bank attempts thru NIBD status for these securities with it.

 

Bank Policy Tuesday: RBI Governor announces policy in an hour

Policy today is likely to disappoint market pressures on the central bank in just an hour while the mood could have been upbeat otherwise, it is now driven by policy expectations and a sharp ‘inhuman ‘ touch on unchanged policy pronouncements can catch market business operators bys urprise.

Policy is likely unchanged even for CRR and even though Sajid Chinoy and Tushar Poddar from GS have been very clearin the coming forecast, the lack of forebearance and the incapabilities of global brands to withstand pressures and lack of trust in institutions at this time added with an avoidance of private bank economists like ICICI Bank and HDFC Bank, markets would negatively dip as FII interest in Indian markets is lower by 13% in 2012 till date over 2010 data and though the buying is on, 5050 is too high a level for serious buyers at this time

Policy likely without changes in interest rates, CRR and Liquidity regime though overextended (thru SLR collateral in MSF, blah..blah)

English: ICICI Bank - Leeds Branch - Roundhay Road
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India Bond Impact ( Fixed Income Report) : RBI sticks to CRR, likely no cuts in CRR, SLR

India GateRBI stuck to its plan for India’s monetary policy not bowing to FI market commentators and probably internal pulls as it refused to consider reserve requirements cuts like China in the period it waits out a bottoming of inflation expectations before considering interest rate cuts

The CRR is 6% currently except for CBLO, ACU (overseas USD holdings) , Offshore banking units NDTL and inter Bank liabilities where a 3% CRR is avered. The MSF lends to banks already including their SLR liabilities as allowed collateral at the upper limit of the rate corridor set by RBI, at 9-9.5%

RBI has already conducted OMOs to stabilise liquidity int he market and may be on the watch for unwanted liquidity influx from new QE in US/Europe and UK in that order

Market pressure on yields pushed them below 8.4% as the Electronic trading platforms traded thrice the daily average in the new year at INR 278 bln daily or INR27,800 cr daily, still avery low amount compared to inter bank trading volumes

Moody’s rating upgrade to P-3 allows india some leeway in apportioning its Reserves again as short term liabilities for Corporates keep increasing

September Bank Policy review : Rate hike again!

Gold Key, weighing one kilogram is used to acc...
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Update: CRR has been cut 25 bps and there may be more CRR cuts. The channel being fixed the repo rate of 8.25% means a MSF rate of 9.25% and a Reverse Repo rate of 7.25% still be paid out by RBI . A SLR cut of some kind and a SLR deposit rate increase may also be happening while CRR is 6%

RBI says:

– Global Eco environment has worsened

– Pace of Exports unlikely to be supported as weak demand

– Inflation much above comfort zone

– Policy transmission is still weak but inflation is being transmitted to retail POP

yields are now trading higher at 8.37%, hawkish stance takes markets down on news. More details after rBI conference is held

Here’s the case for a rate hike in a nutshell:

a. Rates up 475 bp since march 2010. this means the Governor has to start SLR cuts now, which RBI has indicated as possible this time. It does not mean rate cuts or that thee rate hike cycle has topped off because

b. non food inflation at 13% is not in control and the new inflation target of 7% may already be too old as rindia’s crude basket for one remains one of the most expensive in the world at $110 and even in September $106( indiainfoline.com, UBS for the crude basket data)

c. food inflation control has meant plateauing and not fall in inflation

We are here and would be posting the bank rate update

Bank Policy Tuesday: Kicking reforms and the inflation poodle

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A 50 bp hike, addition of a MSF rate 100 points above the repo rate and the removal of the reverse repo rate as a floater. It would be npow in a fixed channel denoting the lower end of the channel at 100 bp below the repo rate. The market should really welcome this policy as allt he planned reforms from the liquidity panel have been added as a bonus while the market was well set for  a 50 bp kicker. The advantage of being part of a thinking growing economy is that it becomes easier for you to be at the top and mauntain thought leadership. Move over the oughts, we are finally in a new decade.

The central bank has also nmixed liberal norms with simpler policy conditions which might cause a few hiccups with the old guard esp those from MNC banks as 25% of all new branches have been requested in Tier 5 and Tier 6 locations taking care of the unbanked at least academically. As policy goes of course this is much nearer to implementation also unlike the deliverance from the beauty and the beast year on year without a set course showing which has been turned on its head since 2007-08 with Duvvoori Rao firmly int he saddle taking a distinct direction and moving fast on the same. The contingent facility and the availability of 1% of CRR+SLR to the banks in overnight should be a brilliant move to keep yields in check as banks could have ended up the bvillain in pushing up inflation ain the conming higher inflation lower growth era for the economy. Also ahead of deregulation, savings rate has been kicked up to 4%

As predicted  a lot of noise about inflation too..as the mogul is still speaking, we shall wait for others reactions too

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