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Rate cut not seen around the corner...
The RBI has maintained status quo on repo rate at 8%. It has maintained
its marginal dovish stance with its CPI inflation target of 8% by January
2015 and 6% by January 2016 continuing, while it projects inflation to
reach 7% by FY16. This brings cautiousness in the financial markets, with
10 year Gsec yield also increasing to 8.49%.
Key policy statements….
ƒ Repo rate kept unchanged at 8% with CRR and SLR unchanged at
4% and 22% respectively
ƒ reduce the liquidity provided under the export credit refinance (ECR)
facility from 32 % of eligible export credit outstanding to 15 % with
effect from October 10, 2014
ƒ Held to maturity (HTM) limit to be gradually reduced from 24% to
22% effective from Jan 2015 every quarter (0.5%) in line with lower
SLR
ƒ Liberalised guidelines on short sale in Government securities
ƒ Projection of GDP growth for FY15 retained at 5.5%. The quarterly
growth path may slow mildly in Q2 and Q3 before recovering in Q4
Our view
The RBI remains committed to its CPI inflation target of 8% by January
2015 which seems achievable, however 6% by January 2016 has an
upside risk. CPI has moderated to 7.8% in Aug 2014, continuous three
months below 8%. We believe during 2015 first half, repo rate cut can be
expected.
Already interest rates in CP and CD market has moderated sharply to
9.4% - 9.6%, offering below base rate coupons, which is in effect getting
reflected in declining deposit rates by banks. Even if repo rate cut may
take longer, bankers may reduce lending rates in line with deposit cost
decline, with a slight lag.
Policy Rationale
“For the near-term objective, therefore, the risks around the baseline path
of inflation are broadly balanced, though with a slant to the downside
(Chart 1). However, the undershooting of the objective may be temporary
because of base effects. Turning to the medium-term objective (6 % by
January 2016) the balance of risks is still to the upside, though somewhat
lower than in the last policy statement. This continues to warrant policy
preparedness to contain pressures if the risks materialise. Therefore, the
future policy stance will be influenced by the Reserve Bank’s projections
of inflation relative to the medium term objective (6 % by January 2016),
while being contingent on incoming data”
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
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Rate cut not seen around the corner...
The RBI has maintained status quo on repo rate at 8%. It has maintained
its marginal dovish stance with its CPI inflation target of 8% by January
2015 and 6% by January 2016 continuing, while it projects inflation to
reach 7% by FY16. This brings cautiousness in the financial markets, with
10 year Gsec yield also increasing to 8.49%.
Key policy statements….
ƒ Repo rate kept unchanged at 8% with CRR and SLR unchanged at
4% and 22% respectively
ƒ reduce the liquidity provided under the export credit refinance (ECR)
facility from 32 % of eligible export credit outstanding to 15 % with
effect from October 10, 2014
ƒ Held to maturity (HTM) limit to be gradually reduced from 24% to
22% effective from Jan 2015 every quarter (0.5%) in line with lower
SLR
ƒ Liberalised guidelines on short sale in Government securities
ƒ Projection of GDP growth for FY15 retained at 5.5%. The quarterly
growth path may slow mildly in Q2 and Q3 before recovering in Q4
Our view
The RBI remains committed to its CPI inflation target of 8% by January
2015 which seems achievable, however 6% by January 2016 has an
upside risk. CPI has moderated to 7.8% in Aug 2014, continuous three
months below 8%. We believe during 2015 first half, repo rate cut can be
expected.
Already interest rates in CP and CD market has moderated sharply to
9.4% - 9.6%, offering below base rate coupons, which is in effect getting
reflected in declining deposit rates by banks. Even if repo rate cut may
take longer, bankers may reduce lending rates in line with deposit cost
decline, with a slight lag.
Policy Rationale
“For the near-term objective, therefore, the risks around the baseline path
of inflation are broadly balanced, though with a slant to the downside
(Chart 1). However, the undershooting of the objective may be temporary
because of base effects. Turning to the medium-term objective (6 % by
January 2016) the balance of risks is still to the upside, though somewhat
lower than in the last policy statement. This continues to warrant policy
preparedness to contain pressures if the risks materialise. Therefore, the
future policy stance will be influenced by the Reserve Bank’s projections
of inflation relative to the medium term objective (6 % by January 2016),
while being contingent on incoming data”
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
LINK
http://content.icicidirect.com/mailimages/IDirect_RBIActions_sep2014.pdf
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