CRR hike: Does 'he' care? - Views on News from Equitymaster

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

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

CRR hike: Does 'he' care?

Apr 2, 2007

Mr. Chidambaram must be cursing Dr. Reddy for putting spoke in his 'India poised' wheel by raising the cost of 'growth capital' for one more time. By taking another step towards tweaking the money supply in the economy by raising the repo rate (which raised the cost of short-term borrowing from the Reserve Bank of India (RBI) for banks) as also the cash reserve ratio (that reduces the amount of funds available for lending in the economy), the RBI governor has once again indicated his seriousness with respect to inflation control.

RBI's parting shot!

If 'expert' words are to be believed, "stockmarkets are destined to open in the negative today" and "CRR news is bad for stock and bond markets and economy." Do you care? Do we care? Maybe! Maybe not! This decision by the RBI reflects the upside risks to price stability (inflation) over the medium term. Thus, the consequent hike in interest rates will contribute to ensuring that long-term inflation expectations remain anchored at levels consistent with price stability. Investors need to appreciate the fact that such an anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting economic growth.

It is important to note that the 6% to 7% inflation in urban areas has not really tempered the demand for products and services. People are still buying cars, homes (some their second), 'beauty products' and (expensive) professional services. These comprise less than 20% of India's population (the urban rich and middle class). However, think about the 70% of India's population where inflation has soared to near 10% levels and it is becoming increasingly difficult (for the agriculture labour) to even make ends meet! Forget spending on potable water, 'free' electricity, basic healthcare and education.

Will this large proportion of the Indian population be bothered of whether the stockmarkets open in the negative (or positive today) of whether they would care if CRR turns out to be bad news for stock and bond markets? Take a guess! Their plates will still remain half empty! It is probably this dilemma of balancing growth across all sections of the economy that is keeping Dr. Reddy alert in his exploits on maintaining price stability.

Even Mr. Chidambaram will be alert, though for somewhat different reasons! His government has recently lost elections in two northern states, as the electorate has shown its wrath in response to rising prices of consumption items.


Equitymaster requests your view! Post a comment on "CRR hike: Does 'he' care?". Click here!

  

More Views on News

India's Drone Revolution is a 4x Profit Opportunity (Profit Hunter)

Sep 30, 2020

My research on India's leading defence companies brought me to one major player in drone manufacturing.

The Gold and Silver Bull Market is Not Over (Fast Profits Daily)

Sep 29, 2020

The last few days have been nerve-racking for bullion traders. Stay calm. The bull market still has a long way to go.

Earned Short Term Capital Gains on Shares? Here's What You Need to Know While Filing ITR (Outside View)

Sep 29, 2020

PersonalFN explains CBDT's clarification regarding scrip wise disclosure in ITR in case of short term capital gain.

This Smallcap is a Must Have Stock in Your Portfolio (Profit Hunter)

Sep 29, 2020

Investing in this smallcap could open doors of huge, long-lasting wealth.

Why the Market May Rally for a Few Days (Fast Profits Daily)

Sep 28, 2020

Why I think the market can rise for the next few days.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Sep 30, 2020 01:57 PM

MARKET STATS