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Mid-Quarter Monetary Policy Review
RBI hikes repo, reverse repo rates by 25bp each
ƒ Hikes repo rate by 25bp to 6.75%
ƒ Hikes reverse repo rate by 25bp to 5.75%
ƒ Keeps SLR and CRR unchanged at 24.0% and 6.0%, respectively
Stance aimed at reigning in demand-side pressures
The RBI’s stance of a 25bp hike in both the repo and reverse repo rates in the last
monetary policy (January 25, 2011) was to contain the spill-over of high food and
fuel inflation into generalised inflation. While the food inflation has moderated
from highs of 18.32% to 9.42% in the last two months, the core manufacturing
inflation (excluding food products) has risen to 6.15%, the highest in the last 29
months, implying that incrementally non-food inflation is becoming a larger
contributor to inflation. Also, the global macro uncertainties are expected to keep
the commodity and crude prices volatile in the near term. Although performance
of capital goods in IIP has been weak in the last two months, the RBI has pointed
out that positive data from other economic indicators such as PMI, direct and
indirect tax collections, merchandise exports and bank credit indicate that the
growth momentum persists. Thus, with the growth forecasts intact and
demand-side pressures persisting in the economy, the current 25bp hike in both
the repo and reverse repo rates seems justified.
WPI inflation forecast for the year end raised to ~8%
The RBI has revised the WPI inflation forecast for the year end to ~8%. This
upward revision comes on the heels of the recent revision of inflation projection
from 5.5% to 7% (January 25, 2011), indicating stickiness in demand-side
inflation. Although the supply-side pressures have diminished on account of the
improved agriculture output, headline inflation has become broad-based in
nature prompting the RBI to raise its projections.
RBI steers clear off SLR and CRR hike
On the liquidity front, although the concerns have eased since the last monetary
policy review on January 25, 2011 with the LAF borrowings averaging
~`74,700cr compared to an average ~`1,10,000cr between December 16,
2010 and January 25, 2011, advance tax outflows for the fourth quarter have
resulted in the LAF borrowings touching `1,33,200cr (as of March 16). On
account of the continued liquidity deficit in the system, the RBI has kept the
harsher statutory liquidity ratio (SLR) and cash reserve ratio (CRR) unchanged at
24.0% and 6.0%, respectively.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mid-Quarter Monetary Policy Review
RBI hikes repo, reverse repo rates by 25bp each
ƒ Hikes repo rate by 25bp to 6.75%
ƒ Hikes reverse repo rate by 25bp to 5.75%
ƒ Keeps SLR and CRR unchanged at 24.0% and 6.0%, respectively
Stance aimed at reigning in demand-side pressures
The RBI’s stance of a 25bp hike in both the repo and reverse repo rates in the last
monetary policy (January 25, 2011) was to contain the spill-over of high food and
fuel inflation into generalised inflation. While the food inflation has moderated
from highs of 18.32% to 9.42% in the last two months, the core manufacturing
inflation (excluding food products) has risen to 6.15%, the highest in the last 29
months, implying that incrementally non-food inflation is becoming a larger
contributor to inflation. Also, the global macro uncertainties are expected to keep
the commodity and crude prices volatile in the near term. Although performance
of capital goods in IIP has been weak in the last two months, the RBI has pointed
out that positive data from other economic indicators such as PMI, direct and
indirect tax collections, merchandise exports and bank credit indicate that the
growth momentum persists. Thus, with the growth forecasts intact and
demand-side pressures persisting in the economy, the current 25bp hike in both
the repo and reverse repo rates seems justified.
WPI inflation forecast for the year end raised to ~8%
The RBI has revised the WPI inflation forecast for the year end to ~8%. This
upward revision comes on the heels of the recent revision of inflation projection
from 5.5% to 7% (January 25, 2011), indicating stickiness in demand-side
inflation. Although the supply-side pressures have diminished on account of the
improved agriculture output, headline inflation has become broad-based in
nature prompting the RBI to raise its projections.
RBI steers clear off SLR and CRR hike
On the liquidity front, although the concerns have eased since the last monetary
policy review on January 25, 2011 with the LAF borrowings averaging
~`74,700cr compared to an average ~`1,10,000cr between December 16,
2010 and January 25, 2011, advance tax outflows for the fourth quarter have
resulted in the LAF borrowings touching `1,33,200cr (as of March 16). On
account of the continued liquidity deficit in the system, the RBI has kept the
harsher statutory liquidity ratio (SLR) and cash reserve ratio (CRR) unchanged at
24.0% and 6.0%, respectively.
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