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RBI continues its calibrated approach; raises policy rates by 25bps
Government securities
At the quarterly review, the Reserve Bank of India raised the key policy rates,
Repo & Reserve Repo rate, by 25bps to 6.5% and 5.5% respectively in line with its
calibrated approach to balance growth and inflation. The CRR and SLR,
however, have been left unchanged thus continuing to stand at 6% and 24%,
respectively. RBI also lifted its headline inflation projection for March 2011 to 7%
from 5.5% previously, and said it expected inflation to begin moderating again in
the first quarter of the fiscal year. It, however, stuck with its 8.5% GDP growth
forecast for the current fiscal year, but with an upside bias.
Bond yield saw a sharp rally as the central bank’s decision to hike rates in a
calibrated manner helped boost the sentiment. The most traded 8.08% 2022 bond
closed 6 bps lower at 8.20% on the back of some value buying. However concerns
about the global commodity prices heighten the upside risk to domestic inflation
and it is impending that RBI will continue with a gradual, non disruptive tightening
to combat the inflation.
The swap rates also saw a sharp downward movement taking cues from the
sovereign yields. The one year swap closed 9 bps lower at 7.37% while the five
year swap closed 2bps lower at 8.04%. If the central bank’s policy action does not
tame the inflation in the next few weeks, we can expect another intermediate hike
before the review meeting on 17th March.
Money markets
In order to support the strained liquidity the central bank extend the additional
liquidity support to SCBs under the LAF to the extent of up to 1% of their NDTL
and a daily second LAF up to April 8, 2011. Overnight rates continued to hover
above the central bank’s lending rates with the LAF borrowing for the fortnight
averaging above the INR 1trn level. However the central expects that the liquidity
will ease once the government starts spending and depleting its abnormal cash
balance of INR 1.53trn.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
RBI continues its calibrated approach; raises policy rates by 25bps
Government securities
At the quarterly review, the Reserve Bank of India raised the key policy rates,
Repo & Reserve Repo rate, by 25bps to 6.5% and 5.5% respectively in line with its
calibrated approach to balance growth and inflation. The CRR and SLR,
however, have been left unchanged thus continuing to stand at 6% and 24%,
respectively. RBI also lifted its headline inflation projection for March 2011 to 7%
from 5.5% previously, and said it expected inflation to begin moderating again in
the first quarter of the fiscal year. It, however, stuck with its 8.5% GDP growth
forecast for the current fiscal year, but with an upside bias.
Bond yield saw a sharp rally as the central bank’s decision to hike rates in a
calibrated manner helped boost the sentiment. The most traded 8.08% 2022 bond
closed 6 bps lower at 8.20% on the back of some value buying. However concerns
about the global commodity prices heighten the upside risk to domestic inflation
and it is impending that RBI will continue with a gradual, non disruptive tightening
to combat the inflation.
The swap rates also saw a sharp downward movement taking cues from the
sovereign yields. The one year swap closed 9 bps lower at 7.37% while the five
year swap closed 2bps lower at 8.04%. If the central bank’s policy action does not
tame the inflation in the next few weeks, we can expect another intermediate hike
before the review meeting on 17th March.
Money markets
In order to support the strained liquidity the central bank extend the additional
liquidity support to SCBs under the LAF to the extent of up to 1% of their NDTL
and a daily second LAF up to April 8, 2011. Overnight rates continued to hover
above the central bank’s lending rates with the LAF borrowing for the fortnight
averaging above the INR 1trn level. However the central expects that the liquidity
will ease once the government starts spending and depleting its abnormal cash
balance of INR 1.53trn.
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