Economy Mid-term Monetary Policy Review n Emkay

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Economy

Mid-term Monetary Policy Review

n     RBI raises repo rate, reverse repo and MSF rates by 25bps. However, drops indications that the hike could be almost last in the offing. Slower growth to almost equally guide actions

n     M1 growth, leading indicator to credit and Capex growth at all time low. Historically has shown –ve impact on growth and +ve impact on inflation. Shouldn’t be any different this time

n     Significantly slower M1 growth (read time deposits) also drives RBI to deregulate SB rates earlier than expected. Negative for HDFC Bank, SBI and PNB at least in short run

n     Deregulating of SB rate can impact PBT of banks by 4-30%. Expect banks to counteract by raising lending rates.  But competition may not be easy due to  ALM and cost issues