Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
RBI Mid Quarter Monetary Policy Preview
RBI will be holding the mid-quarter review of the monetary and credit policy today. The
growth-inflation trade-off has narrowed in the last couple of months, with food inflation
easing a bit, but yet well above comfort levels, while growth is showing some signs of
weakening, reflected in IIP data. As a result, policy action this time around is a close call,
and we expect that the central bank may increase the repo and reverse repo rates by 25bp
each to 6.75% and 5.75%, respectively, but keep the harsher statutory liquidity ratio (SLR)
and cash reserve ratio (CRR) unchanged at 24.0% and 6.0%, respectively.
This also takes into cognizance the fact that in the last couple of months broader interest
rates have already increased substantially by 200–250bp, which may cool down credit
growth from the current ~23% levels to more sustainable 18–20% levels, even as deposit
mobilisation continues to increase in the coming months due to the recent increase in
interest rates. As a result, as far as broader interest rates are concerned, we believe rates
are at an interim peak and banks are unlikely to change deposit rates until April at least,
with further hikes beyond April too looking a little unlikely at present.
On the inflation front, while food inflation has moderated from the highs of 18.32% to 9.52%
in the last two months, core manufacturing inflation (excluding food products) has risen to
6.15%, the highest in 29 months, implying that incrementally non-food inflation is becoming a
larger contributor to inflation – something that would worry the central bank. Although
continued sluggish industrial performance might warrant a pause in monetary tightening,
higher-than-estimated inflation for the month of February at 8.31% (7.80%) and upward
revision in December numbers from 8.43% to 9.41% indicate that inflation still remains a
matter of concern. Also, rising global commodity prices and crude prices are expected to weigh
on inflation numbers in the coming months. Consequently, we believe the central bank may
increase the repo and reverse repo rates by 25bp each, though this is unlikely to have a
material impact on broader interest rates at this juncture.
On the liquidity front, although liquidity concerns have eased since the last monetary policy
review on January 25, 2011, with LAF borrowings averaging ~`74,700cr compared to the
average ~`1,10,000cr between December 16, 2010, and January 25, 2011, advance tax
outflows for the fourth quarter have resulted in LAF borrowings to touch `1,17,300cr (as of
March 15). On account of continued liquidity deficit in the system, 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 Mid Quarter Monetary Policy Preview
RBI will be holding the mid-quarter review of the monetary and credit policy today. The
growth-inflation trade-off has narrowed in the last couple of months, with food inflation
easing a bit, but yet well above comfort levels, while growth is showing some signs of
weakening, reflected in IIP data. As a result, policy action this time around is a close call,
and we expect that the central bank may increase the repo and reverse repo rates by 25bp
each to 6.75% and 5.75%, respectively, but keep the harsher statutory liquidity ratio (SLR)
and cash reserve ratio (CRR) unchanged at 24.0% and 6.0%, respectively.
This also takes into cognizance the fact that in the last couple of months broader interest
rates have already increased substantially by 200–250bp, which may cool down credit
growth from the current ~23% levels to more sustainable 18–20% levels, even as deposit
mobilisation continues to increase in the coming months due to the recent increase in
interest rates. As a result, as far as broader interest rates are concerned, we believe rates
are at an interim peak and banks are unlikely to change deposit rates until April at least,
with further hikes beyond April too looking a little unlikely at present.
On the inflation front, while food inflation has moderated from the highs of 18.32% to 9.52%
in the last two months, core manufacturing inflation (excluding food products) has risen to
6.15%, the highest in 29 months, implying that incrementally non-food inflation is becoming a
larger contributor to inflation – something that would worry the central bank. Although
continued sluggish industrial performance might warrant a pause in monetary tightening,
higher-than-estimated inflation for the month of February at 8.31% (7.80%) and upward
revision in December numbers from 8.43% to 9.41% indicate that inflation still remains a
matter of concern. Also, rising global commodity prices and crude prices are expected to weigh
on inflation numbers in the coming months. Consequently, we believe the central bank may
increase the repo and reverse repo rates by 25bp each, though this is unlikely to have a
material impact on broader interest rates at this juncture.
On the liquidity front, although liquidity concerns have eased since the last monetary policy
review on January 25, 2011, with LAF borrowings averaging ~`74,700cr compared to the
average ~`1,10,000cr between December 16, 2010, and January 25, 2011, advance tax
outflows for the fourth quarter have resulted in LAF borrowings to touch `1,17,300cr (as of
March 15). On account of continued liquidity deficit in the system, we expect the RBI to hold on
to the current CRR and SLR at 6.0% and 24.0%, respectively.
No comments:
Post a Comment