Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Why Dr Rajan refused to oblige with another rate cut... - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  
  • Home
  • Outlook Arena
  • Feb 3, 2015 - Why Dr Rajan refused to oblige with another rate cut...

Why Dr Rajan refused to oblige with another rate cut...
Feb 3, 2015

At a time when most other central banks globally are willing to print trillions, Dr Rajan certainly has a lot of peer pressure. But neither were his predecessors at the RBI bothered about popularity nor is he himself!

As we have always said, India is fortunate to have had central bankers over the past decade who never compromised on the crux of central banking. They never gave in to demands of political and corporate heavyweights. And instead did their best to highlight the risks even in times of optimism.

After the unexpected rate cut in January, policy makers, corporates and stock markets were almost certain of Dr Rajan cutting rates in quick succession over 2015. After all, why keep borrowing costs high at a time when India is probably the only feasible investment destination?

But as it clearly appears, Dr Rajan clearly thinks otherwise!

But choosing to cut the Statutory Liquidity Ratio (SLR, which mandates banks to invest some capital in government bonds) by 0.5%, the RBI has freed up some funds for banks. However, the decision to not cut the benchmark repo rate signals the governor's hesitance to join in the optimism. India's inflation problem is not behind us as policy makers would like us to believe. And the fiscal deficit problem is certainly going to remain longer than expected. In such a scenario, if the central bank loses sight of systemic risks then we would be hardly better off than the US or Eurozone.

Banks in India will certainly have it tough getting rid of high NPAs and restructured loans. The current interest rates will ensure that unlike the big banks in the US, ones here do not have an easy exit. Also corporates will continue to remain cautious about leverage.

We believe that for investors, there could be nothing better than investing in an economy where systemic risks are largely taken care of. Be it debt to GDP ratio or savings rate, India is better off than most other developed and developing economies. And there is no reason why the RBI should oblige policy makers and corporates with a rate cut, earlier than it is warranted.

Investors on their part should ignore the hype around Monetary policies and instead focus on finding undervalued stocks trading at significant discount to intrinsic values.

Tanushree Banerjee

Tanushree Banerjee (Research Analyst), is the editor of Stock Select and, ValuePro Equitymaster's oldest recommendation services. She is also the editor of Equitymaster's most popular newsletter read by over 300,000 subscribers, The 5 Minute WrapUp. Tanushree started her career at Equitymaster covering the banking and financial sector stocks and scrutinising RBI policies. Over the last decade, she developed Equitymaster's research processes that helped us pick out various multibaggers, across all sectors. A firm believer of "safety first" when it comes to investing, Tanushree closely follows the investing philosophies of Warren Buffett, Jeremy Grantham, and Joel Greenblatt.

Equitymaster requests your view! Post a comment on "Why Dr Rajan refused to oblige with another rate cut...". Click here!


More Views on News

Two Meetings That Nailed the Idea of Owning Brilliant Smallcaps Without Buying Them (The 5 Minute Wrapup)

Mar 22, 2018

Certain blue chips hold the potential of delivering returns comparable to small-cap stocks. With these stocks, you can get the best of both worlds.

What They Forgot to Tell You About Sensex at One Lakh (Profit Hunter)

Nov 29, 2017

Stocks that could beat Sensex returns in the long term.

Why Banks Are Chasing Retail Loans (Sector Info)

Jun 15, 2018

Retail loans offer the security of better recovery in case of default.

Should You Invest In Mirae Asset Healthcare Fund? (Outside View)

Jun 15, 2018

Mirae Asset Mutual Fund launches NFO - Mirae Asset Helathcare Fund.

Were We Wrong About Everything? (Vivek Kaul's Diary)

Jun 15, 2018

Despite the predictions of gloom, the US economy seems to be booming. There is more than full employment, Fed is normalizing its monetary policy. So, is it the time for us to rethink? Bill Bonner offer insights on the same.

More Views on News

Most Popular

After Vakrangee and Manpasand, More Auditors May Soon Resign. To Protect Your Wealth, Avoid these Stocks(The 5 Minute Wrapup)

Jun 8, 2018

The change in auditing regulations can bring a big change in corporate governance behaviour in the mid and small-cap space.

Should You Get out of Small Caps Now... Before the Fall Worsens(Profit Hunter)

Jun 6, 2018

An almost zero-loss strategy that works best when markets correct. Don't let the current volatility overwhelm you. Focus on the fundamentals and long term, and buy stocks where quality meets value.

Why Bank-Mergers Continue to Remain a Bad Idea(Vivek Kaul's Diary)

Jun 5, 2018

A newsreport suggests that the government plans to merge four public sector banks. We think it's a bad idea.

Has the Market Bottomed Out?(Sector Info)

Jun 11, 2018

The yield spread is an effective barometer that can indicate the direction the markets are headed.

Is Data Pointing Towards a Revival in the FMCG Sector?(Sector Info)

Jun 8, 2018

After several quarters of stress in the aftermath of demonetisation and the rollout of GST, this data is pointing towards revival in the India's rural FMCG industry.


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Jun 15, 2018 (Close)