Banking Mid-Quarter Monetary Policy Review n Emkay

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Banking

Mid-Quarter Monetary Policy Review

n     RBI hikes the Repo rate by 25bps to 8.25% and accordingly the reverse repo stand adjusted at 7.25% and MSF (Marginal Standing Facility) at 9.25%

n     Though RBI maintain its hawkish stance, we expect the correlation between M1 and WPI Mfg inflation to help bring the inflation down by Nov-Dec 2011

n     RBI Sees downside risk to GDP growth target of 8%. Bond yield not likely to come off, as fiscal deficit running off target

n     We do not expect any immediate increase in lending or deposit rates by banks, as any further increase will have adverse impact on credit demand and asset quality