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RBI Policy Preview
In the forthcoming RBI Monetary Policy Review on January 25, 2011, we expect the central
bank to raise both repo and reverse repo rates by 25bp each to 6.5% and 5.5%,
respectively. The possibility of a 50bp hike also cannot be ruled out. We expect the RBI to
keep the statutory liquidity ratio (SLR) and cash reserve ratio (CRR) unchanged at 24.0% and
6.0%, respectively.
Expect a 25bp hike, but not ruling out the 50bp hike: In the last policy review, the central
bank had not raised the repo and reverse repo rates but had indicated it to be a temporary
pause. For improving liquidity in the system, the RBI had cut the SLR by 1.0% to 24.0% in the
last policy review. However, with WPI inflation rising to 8.4% in December 2010 from 7.5%
in November 2010, much above the RBI’s comfort zone, monetary tightening spree is likely
to start once again. Food inflation has also accelerated pretty rapidly from 8.6% yoy for the
week ended November 20, 2010, to the peak of 18.3% for the week ended December 25,
2010. On the other hand, industrial growth showed some signs of slowing down, with
November 2010 IIP growth slowing down to 2.7% compared to average growth of 12.6% in
the past 12 months.
Though the problem of inflation seems to be more affected on account of supply-side issues;
internationally, central banks have historically raised policy rates in the scenario of rising
inflation even if economic growth is not so high. Hence, looking at the high inflation in India
at present, we believe the RBI will once again resume monetary tightening, with anchoring
inflation its top priority rather than growth.
Do not expect a CRR hike due to persistently tight liquidity conditions: System liquidity has
been persistently tight with liquidity adjustment facility (LAF) window borrowings averaging
~`1,10,000cr since its last policy review on December 16, 2010. Hence, we expect the RBI
to hold on to the current CRR and SLR at 6.0% and 24.0%, respectively.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
RBI Policy Preview
In the forthcoming RBI Monetary Policy Review on January 25, 2011, we expect the central
bank to raise both repo and reverse repo rates by 25bp each to 6.5% and 5.5%,
respectively. The possibility of a 50bp hike also cannot be ruled out. We expect the RBI to
keep the statutory liquidity ratio (SLR) and cash reserve ratio (CRR) unchanged at 24.0% and
6.0%, respectively.
Expect a 25bp hike, but not ruling out the 50bp hike: In the last policy review, the central
bank had not raised the repo and reverse repo rates but had indicated it to be a temporary
pause. For improving liquidity in the system, the RBI had cut the SLR by 1.0% to 24.0% in the
last policy review. However, with WPI inflation rising to 8.4% in December 2010 from 7.5%
in November 2010, much above the RBI’s comfort zone, monetary tightening spree is likely
to start once again. Food inflation has also accelerated pretty rapidly from 8.6% yoy for the
week ended November 20, 2010, to the peak of 18.3% for the week ended December 25,
2010. On the other hand, industrial growth showed some signs of slowing down, with
November 2010 IIP growth slowing down to 2.7% compared to average growth of 12.6% in
the past 12 months.
Though the problem of inflation seems to be more affected on account of supply-side issues;
internationally, central banks have historically raised policy rates in the scenario of rising
inflation even if economic growth is not so high. Hence, looking at the high inflation in India
at present, we believe the RBI will once again resume monetary tightening, with anchoring
inflation its top priority rather than growth.
Do not expect a CRR hike due to persistently tight liquidity conditions: System liquidity has
been persistently tight with liquidity adjustment facility (LAF) window borrowings averaging
~`1,10,000cr since its last policy review on December 16, 2010. Hence, we expect the RBI
to hold on to the current CRR and SLR at 6.0% and 24.0%, respectively.
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