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.
Monetary Policy: Yet another reluctant rate cut - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Mar 19, 2013

    Monetary Policy: Yet another reluctant rate cut

    The Reserve Bank of India (RBI) made yet another cut in the repo rate, in its mid-quarterly Monetary Policy review. The Cash Reserve Ratio (share of deposits banks have to park with the RBI) was however kept unchanged. As we predicted at the start of the year, the central bank has become increasingly dovish come 2013. Although happy with the government’s focus on curtailing deficits, the RBI is clearly not comfortable with inflation levels. Nevertheless, under pressure to stimulate capital investment and growth, the central bank made a reluctant rate cut.

    The repo rate has been cut by 0.25%. The rates for the CRR and the repo now stand at 4% and 7.5% respectively. Consequently the reverse repo rate under the Liquidity Adjustment Facility (LAF) stands adjusted to 6.5%.

    How the situation has changed on the ground?

    The US has been seeing some improvements in macroecnomic numbers. However, there is still uncertainty with regards to the debt ceiling and certain other temporary appropriations. The euro zone also continues to be plagued by various economic uncertainties most recent being the Cyprus bailout and taxation of bank deposits. Japan is still struggling, and while emerging markets are growing, their pace has slackened.

    The Indian economy expanded at a 15-quarter low rate of 4.5% YoY in Oct-Dec 2012 quarter, which is worrying. The services sector, which was usually the bastion of growth, has decelerated to its slowest pace in a decade. Although industrial production in January picked up to 2.4% growth after two months of contraction, the recovery is still weak and a stimulant was required.

    On the inflation front, the year-on-year headline Wholesale Price Inflation (WPI) edged up to 6.8% in February 2013 from 6.6% in January. Unfortunately, consumer inflation (CPI) continued its upward trend, touching a high of 10.9% in February 2013 on sustained pressures on prices of food items, especially cereals and proteins.

    Going forward..

    Export growth is still weak affecting the current account deficit and the fiscal deficit continues to loom large. Investment is key to invigorating growth in the country, and the RBI has tried to improve investment sentiment by cutting interest rates. But, just lowering rates is not the only way to revive sentiment. India needs to continue on a path of fiscal consolidation and bridge supply constraints in order to curb inflation.

    More importantly, RBI Governor Dr Subbarao, acknowledged that there is limited headroom to ease monetary policy going forward as supply-demand balances persist. The government has to play a key role in stimulating growth with policy measures. But, with the deficit number hitting a record high, this is going to be a tough rope to walk.

    We do not expect the rate cut to have any immediate positive impact on the banking sector in the near term. Pick up in capital investments too will be subject to many other factors besides lending rates.

     

     

    Equitymaster requests your view! Post a comment on "Monetary Policy: Yet another reluctant rate cut". Click here!

      
     

    More Views on News

    IDFC Bank: Strong Trading Income Shields Credit Slowdown (Quarterly Results Update - Detailed)

    Aug 10, 2017

    IDFC Bank is taking steps to address contracting NIMs and successfully transition in to a retail bank.

    ICICI Bank: Loan Slippages Trending Downwards (Quarterly Results Update - Detailed)

    Aug 10, 2017

    Asset quality will be the key thing to watch out for going forward.

    Axis Bank: Outside Watchlist Slippages a Big Worry (Quarterly Results Update - Detailed)

    Jul 31, 2017

    Almost 74% of the watchlist as provided by the bank of Rs 226 billion in FY16 has turned into non-performing assets.

    Should You Take SBI Chief's Advice and Load up on SBI Shares? (The 5 Minute Wrapup)

    Jul 6, 2017

    Does the stock score on the value versus price equation?

    AU Small Finance Bank Ltd. (IPO)

    Jun 27, 2017

    Should one subscribe to the IPO of AU Small Finance Bank Ltd?

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    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?

    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 BANKEX


    Aug 21, 2017 (Close)

    MARKET STATS