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RBI Monetary Policy Preview
The Reserve Bank of India (RBI) will be conducting the 1QFY2012 review of its monetary
policy today. The street is expecting the RBI to carry out one or two more hikes in its repo
rate, considering the elevated inflation numbers. However, we see cooling global
commodity prices, moderating food inflation (at two-year lows), weakening domestic
demand, slowing credit (down to sub-20% levels) and higher deposit mobilisation, as
signals that the economy is very close to peak levels for both inflation and broader interest
rates. The latest IIP print and HSBC PMI levels are signaling a considerable moderation in
growth. Also, the lag-effect of the monetary policy has to be taken into consideration.
Accordingly, although the RBI may still deem it necessary to hike the repo rate by another
25bp or so to anchor inflation expectations decisively; however, in our view, there is now
an increasingly distinct possibility that there may not be any more rate hikes from the
Central Bank. In case the RBI uses the relatively mild repo tool (as against the harsher CRR
hike), we do not expect banks to further increase the broader deposit or lending rates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
RBI Monetary Policy Preview
The Reserve Bank of India (RBI) will be conducting the 1QFY2012 review of its monetary
policy today. The street is expecting the RBI to carry out one or two more hikes in its repo
rate, considering the elevated inflation numbers. However, we see cooling global
commodity prices, moderating food inflation (at two-year lows), weakening domestic
demand, slowing credit (down to sub-20% levels) and higher deposit mobilisation, as
signals that the economy is very close to peak levels for both inflation and broader interest
rates. The latest IIP print and HSBC PMI levels are signaling a considerable moderation in
growth. Also, the lag-effect of the monetary policy has to be taken into consideration.
Accordingly, although the RBI may still deem it necessary to hike the repo rate by another
25bp or so to anchor inflation expectations decisively; however, in our view, there is now
an increasingly distinct possibility that there may not be any more rate hikes from the
Central Bank. In case the RBI uses the relatively mild repo tool (as against the harsher CRR
hike), we do not expect banks to further increase the broader deposit or lending rates.
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