Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
Economy – Monetary Policy, Jan ’11
Baby steps to continue
Reacting to the lingering high inflation, the RBI today hiked the
repo and reverse repo rates by 25bps each, while leaving the SLR
and CRR unchanged. The RBI now projects WPI inflation at 7%
by end-Mar ’11. We expect two more rate hikes of 25bps each by
Jun ’11.
Rate hike on expected lines. In line with market expectations, the
RBI increased the repo rate (at which banks borrow from the RBI)
and the reverse-repo rate (at which banks park money with the RBI)
by 25bps each in its third quarter monetary policy review today. The
cash reserve ratio (CRR) was kept unchanged at 6%.
First rate hike of ’11; more to come. Today’s rate hike comes on
the back of six hikes in ’10. Overall, the RBI has hiked repo rate by
175bps, reverse-repo rate by 225bps and CRR by 100bps during the
ongoing rate hike cycle. We expect rate hikes to continue.
Inflation projection revised upward to 7%. The RBI has
increased WPI inflation projection for end-Mar ’11 to 7% from 5.5%
earlier. The WPI inflation inched up to 8.4% in Dec ’10 after
softening to 7.5% in Nov ’10. The RBI has kept the growth
projections for GDP, money supply, credit and deposit unchanged.
No additional liquidity enhancement measure. The current acute
liquidity shortage of ~ `1trn is substantially outside the RBI’s
comfort zone (~`500bn). The liquidity support to banks allowing the
use of up to 1% of SLR (as a proportion of net demand & time
liabilities-NDTL) as collateral under LAF has been extended up to 8
Apr ’11.
Outlook. The document of “Macroeconomic and Monetary
Developments” released by the RBI yesterday sounds more hawkish
than today’s decision on the Monetary Policy. This revalidates RBI’s
approach of sequenced tightening. We expect inflation to soften
below RBI’s estimate – we see WPI inflation in Mar ’11 at ~6% as
against RBI’s revised estimate of 7%. Yet, in view of RBI’s hawkish
stance, we expect the RBI to hike policy rates twice by 25bps each in
the current and next quarters. Thereafter, we expect growth outlook
to play a bigger role in deciding the trajectory of the policy rates. On
the liquidity front, we expect some easing as government starts
spending part of the excess cash balance with the RBI and creditdeposit
growth of the commercial banks starts narrowing. We expect
the G-Sec yield curve to shift downwards and steepen in the current
quarter.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� �
Economy – Monetary Policy, Jan ’11
Baby steps to continue
Reacting to the lingering high inflation, the RBI today hiked the
repo and reverse repo rates by 25bps each, while leaving the SLR
and CRR unchanged. The RBI now projects WPI inflation at 7%
by end-Mar ’11. We expect two more rate hikes of 25bps each by
Jun ’11.
Rate hike on expected lines. In line with market expectations, the
RBI increased the repo rate (at which banks borrow from the RBI)
and the reverse-repo rate (at which banks park money with the RBI)
by 25bps each in its third quarter monetary policy review today. The
cash reserve ratio (CRR) was kept unchanged at 6%.
First rate hike of ’11; more to come. Today’s rate hike comes on
the back of six hikes in ’10. Overall, the RBI has hiked repo rate by
175bps, reverse-repo rate by 225bps and CRR by 100bps during the
ongoing rate hike cycle. We expect rate hikes to continue.
Inflation projection revised upward to 7%. The RBI has
increased WPI inflation projection for end-Mar ’11 to 7% from 5.5%
earlier. The WPI inflation inched up to 8.4% in Dec ’10 after
softening to 7.5% in Nov ’10. The RBI has kept the growth
projections for GDP, money supply, credit and deposit unchanged.
No additional liquidity enhancement measure. The current acute
liquidity shortage of ~ `1trn is substantially outside the RBI’s
comfort zone (~`500bn). The liquidity support to banks allowing the
use of up to 1% of SLR (as a proportion of net demand & time
liabilities-NDTL) as collateral under LAF has been extended up to 8
Apr ’11.
Outlook. The document of “Macroeconomic and Monetary
Developments” released by the RBI yesterday sounds more hawkish
than today’s decision on the Monetary Policy. This revalidates RBI’s
approach of sequenced tightening. We expect inflation to soften
below RBI’s estimate – we see WPI inflation in Mar ’11 at ~6% as
against RBI’s revised estimate of 7%. Yet, in view of RBI’s hawkish
stance, we expect the RBI to hike policy rates twice by 25bps each in
the current and next quarters. Thereafter, we expect growth outlook
to play a bigger role in deciding the trajectory of the policy rates. On
the liquidity front, we expect some easing as government starts
spending part of the excess cash balance with the RBI and creditdeposit
growth of the commercial banks starts narrowing. We expect
the G-Sec yield curve to shift downwards and steepen in the current
quarter.
No comments:
Post a Comment