Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
High inflation and no demand slowdown seen…
Key policy measures announced
• Hikes Repo Rate 25 bps to 7.5% with immediate effect and
thereby Reverse Repo Rate increases 25 bps to 6.5%
• Keeps Bank Rate and CRR unchanged at 6.0%
• Marginal Standing facility (MSF) rate for banks increases to 8.5%
Impact Analysis
Rate hike of 25bps was in line with expectations but RBI’s concerns on
inflation still remain. May 2011 WPI at 9.06% with non food products also
contributing high makes us believe another 25-50bps hike may be
enough. The condition in current period with GDP growth tapering down
to near 8% levels and low IIP and high inflation, further steep hikes may
become a dampener to growth.
We are almost close to the same level of Repo rates as was in January
2007, the year of peak numbers like GDP growth for March 2007 quarter
was 9.6%, credit growth was 28% y-o-y, Rupee at ~ | 44.3 .
These levels of repo rates were only at 2 times in 2001 and 2007 in last
ten years. Elevated interest rates in 2007 at 7.75% led to considerable
inflows and hence rupee appreciation up to | 40 levels in just 6-8 months
time. During this period GDP was high and inflation at its lows of 4% –
6%.
A hike of 25-50 bps in repo rate and 50 -100 bps drop in inflation to lead
to convergence of Repo and Inflation rates and gap to come close to
zero.
RBI’s stance on other parameters…..
On liquidity
The Government’s cash balances moved from a surplus of | 89,000 crore
on an average during Q4 of 2010-11 to a deficit of | 29,000 crore during
Q1FY12 (as per June 15, 2011 data). Consequently, net injection of
liquidity through LAF repos declined from an average of | 84,000 crore
during Q4 of 2010-11 to | 41,000 crore in 2011-12 (up to June 15, 2011).
The net liquidity injection RBI was higher at | 60,000 crore as on June 15,
2011. RBI will continue to maintain liquidity conditions such that neither
surplus liquidity dilutes the monetary policy stance nor large deficit
chokes off fund flows to productive sectors of the economy.
On Growth
GDP growth estimates maintained at 7.8% – 8.5% range. However global
macro economic developments may pose risk.
As per RBI, monetary transmission has strengthened and the impact of
RBI’s recent monetary policy actions is still unfolding. The challenge of
containing inflation and anchoring inflation expectations persists.
Our view
We expect banking and financial services sector to feel the pressure of
rate hikes in terms of contracting credit growth and NPA’s on account of
slowdown in near term. 10 Year G-Sec yield is expected to stay above 8%
till H1FY12 as government borrowing programme and inflation will be
high till then. However we remain bullish from a long term perspective as
economy rebounds post H1FY12E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
High inflation and no demand slowdown seen…
Key policy measures announced
• Hikes Repo Rate 25 bps to 7.5% with immediate effect and
thereby Reverse Repo Rate increases 25 bps to 6.5%
• Keeps Bank Rate and CRR unchanged at 6.0%
• Marginal Standing facility (MSF) rate for banks increases to 8.5%
Impact Analysis
Rate hike of 25bps was in line with expectations but RBI’s concerns on
inflation still remain. May 2011 WPI at 9.06% with non food products also
contributing high makes us believe another 25-50bps hike may be
enough. The condition in current period with GDP growth tapering down
to near 8% levels and low IIP and high inflation, further steep hikes may
become a dampener to growth.
We are almost close to the same level of Repo rates as was in January
2007, the year of peak numbers like GDP growth for March 2007 quarter
was 9.6%, credit growth was 28% y-o-y, Rupee at ~ | 44.3 .
These levels of repo rates were only at 2 times in 2001 and 2007 in last
ten years. Elevated interest rates in 2007 at 7.75% led to considerable
inflows and hence rupee appreciation up to | 40 levels in just 6-8 months
time. During this period GDP was high and inflation at its lows of 4% –
6%.
A hike of 25-50 bps in repo rate and 50 -100 bps drop in inflation to lead
to convergence of Repo and Inflation rates and gap to come close to
zero.
RBI’s stance on other parameters…..
On liquidity
The Government’s cash balances moved from a surplus of | 89,000 crore
on an average during Q4 of 2010-11 to a deficit of | 29,000 crore during
Q1FY12 (as per June 15, 2011 data). Consequently, net injection of
liquidity through LAF repos declined from an average of | 84,000 crore
during Q4 of 2010-11 to | 41,000 crore in 2011-12 (up to June 15, 2011).
The net liquidity injection RBI was higher at | 60,000 crore as on June 15,
2011. RBI will continue to maintain liquidity conditions such that neither
surplus liquidity dilutes the monetary policy stance nor large deficit
chokes off fund flows to productive sectors of the economy.
On Growth
GDP growth estimates maintained at 7.8% – 8.5% range. However global
macro economic developments may pose risk.
As per RBI, monetary transmission has strengthened and the impact of
RBI’s recent monetary policy actions is still unfolding. The challenge of
containing inflation and anchoring inflation expectations persists.
Our view
We expect banking and financial services sector to feel the pressure of
rate hikes in terms of contracting credit growth and NPA’s on account of
slowdown in near term. 10 Year G-Sec yield is expected to stay above 8%
till H1FY12 as government borrowing programme and inflation will be
high till then. However we remain bullish from a long term perspective as
economy rebounds post H1FY12E.
No comments:
Post a Comment