X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 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.
CRR cut: RBI's weekend surprise - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Mar 9, 2012

    CRR cut: RBI's weekend surprise

    India's central bank seems to have had it enough as far as liquidity in the banking system is concerned. Late Friday evening, when the people were rushing home and eagerly awaiting the weekend, India's central bank was hard at work. It chose to spring a surprise on the unsuspecting public. And quite a big one at that. The Reserve Bank of India (RBI) announced that it has decided to reduce the cash reserve ratio (CRR) of scheduled banks by 0.75% from 5.5% to 4.75%, effective March 10, 2012.

    This surprise move has come around a week before the scheduled monetary policy update. In reducing the CRR, (share of deposits banks must hold with the central bank), the RBI has tried to ease the structural pressures on liquidity. It believes that the CRR cut would be the most effective way to permanently inject liquidity in the system. With this move around Rs 480 bn of liquidity is expected to be injected into the system.

    Why now?

    Banks have been paying a premium for liquidity in the money market. Plus Rs 400-600 bn is expected to flow out of the system and into government coffers as companies pay advance tax. Credit demand is also expected to pick up towards the end of the fiscal as banks try and meet their year-end targets. This would once again put pressure on liquidity. The current liquidity in the system is well below RBI's comfort level, hence the sudden move to rectify matters.

    This move also seems to have come on the back of poor economic growth numbers coming out of India currently. GDP growth has slowed considerably and is way off target. IIP numbers are also dismal. Besides, the fact that inflation has mellowed down a great deal also seems to have helped matters.

    What to expect going forward

    The RBI's monetary policy is less than a week away. We believe that this review may just be a non-event as the 'big move' has already been made. We believe that the central bank would do well to wait before making any decisions regarding cutting policy rates. The RBI may wait for the Union Budget to be released before it makes any concrete decisions. The Budget incidentally releases the day after the RBI's policy update.

    We would like to wait for next week to see the RBI's stance on growth and inflation. However this CRR cut, and the previous one in January has clearly signaled that the central bank is worried about growth in the system. While policy rates have not yet been eased, the CRR cut may just set the tone for FY13. With less pressure to park funds with the RBI, banks may be willing to lend more and thus growth prospects may better.

    All in all, this surprise move was more than welcome. With the March 15th monetary policy likely to be a non-event, all eyes are now on Mr Pranab Mukherjee and the Union Budget.

      Rahul Shah (Research Analyst), Managing Editor, Microcap Millionaires has led the team from the front in developing some of our most stringent and rewarding research processes. As per his own admission, the turning point in Rahul's life as a financial analyst came a few years back when he got introduced to the works of Warren Buffett and Charlie Munger. From Buffett, he understood the value of investing in good quality business with powerful moats and strong management teams. Charlie Munger on the other hand inspired him to be a lifelong learner and use mental models in order to arrive at the crux of matters across most disciplines. Rahul firmly believes that in order to be successful at investing, you have to do the big things right and possess a great temperament and a contrarian streak.

     

     

    Equitymaster requests your view! Post a comment on "CRR cut: RBI's weekend surprise". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why Hasn't Warren Buffett Rung the Bell Yet? (The 5 Minute Wrapup)

    Aug 22, 2017

    It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.

    Think Twice Before You Keep Money In A Savings Bank Account (Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    A Darkness Is Spreading Across the US (Vivek Kaul's Diary)

    Aug 22, 2017

    Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 22, 2017 (Close)

    MARKET STATS