X

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.
Monetary Policy: In anticipation of low inflation - Views on News from Equitymaster
  • MyStocks

MEMBER'S LOGINX

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

Monetary Policy: In anticipation of low inflation
Sep 30, 2014

It is not as if Governor Dr Rajan has not taken note of the positive cues emanating in terms of economic revival. It is not just the higher GDP growth rate but inflation too, which has shown signs of cooling off in recent months. However, not being satisfied without putting the inflation demon to rest, the RBI wants more evidence. It needs evidence that the government is taking steps to check all the problems that stoke food prices and consumer inflation. And without that any liberal stance will not find its way to the Monetary Policies.

A much expected status quo

As widely expected the Reserve Bank of India (RBI) in its fourth bi-monthly monetary policy statement has kept key rates unchanged. While the key repo rate continues to stand at 8%, the reverse repo also remains at 7%. Repo rate is the rate at which RBI lends money to banks for short-term. The RBI has also kept both the statutory liquidity ratio (SLR) (22%) and the cash reserve ratio (CRR) (4%) unchanged. SLR is the minimum bond holding requirements that lenders must set aside, while CRR determines the percentage of bank deposits that must be kept at the central bank. However, in the previous policy review, the central bank had chosen to tinker with the SLR in an effort to boost liquidity in the system.

Considering the risks pertaining to consumer inflation (CPI) moving closer to the target of 6%, the status-quo policy is on expected lines. While inflation has seen some moderation in recent periods thanks to the softening international crude prices and the foreign exchange market stability, the food price risks continue to raise its ugly head. The Governor expects a higher number of 7% by next year end.

The GDP growth projections of the apex bank have been retained at 5.5% for FY15 and 6.3% for FY16. The RBI has also notified about easing liquidity pressures on account of lower credit growth that continues to lag the deposit growth. The non-food credit has been decelerating and stood lowest during September since last 14 years.

What to expect?

The key policy takeaway remains that the central bank is now focused on achieving the 6% CPI target. Sounding cautious, the RBI's current stance stems from the anticipation of revival in economic activity, softening consumer inflation and fiscal tightening. In light of emphasis on liquidity boost strategy, it seems quite unlikely that the RBI may opt for any rate cuts during the current calendar year.

As for the banking system, growth in credit in the near term will largely depend on economic revival as against fall in interest rates.

Shweta Daptardar-Mane

Shweta Daptardar-Mane, has an MBA (Finance) degree and over five years of equity research experience. She passionately tracks the Banking and Finance industry and follows the macro developments in the economy, particularly the central bank monetary policy. She is deeply inspired by not only Buffett's investment acumen, but also by his infectiously charismatic, down-to-earth persona. Shweta is the contributor to our large cap franchise, StockSelect.

Equitymaster requests your view! Post a comment on "Monetary Policy: In anticipation of low inflation". Click here!

  

More Views on News

Insider Leaks Equitymaster Stock Picks (The 5 Minute Wrapup)

Jul 25, 2017

Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?

Raymond and Other 'For Profit' Companies Who Don't Care about Shareholder Returns (The 5 Minute Wrapup)

May 27, 2017

What happens when minority shareholders are short-changed in the normal course of business?

Why Commission Driven Model In Mutual Funds Should Be Eliminated... (Outside View)

Feb 15, 2017

PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.

This Book Changed How I Looked at the World of Man and Money (Vivek Kaul's Diary)

Aug 24, 2016

And here's your chance to claim a free copy of this book...

The Developed World is Dying because of Demographics, Debt, and Deflation (Vivek Kaul's Diary)

Aug 12, 2016

And Why India's demographic dividend could turn out to be a doubtful debt...

More Views on News

Most Popular

Will the IPOs in 2018 be as rewarding as the ones in 2017?

In 2017 funds raised through IPOs is highest over a decade. And the stock market still flying high, some observers are predic...

The Foundation for Sensex 100,000 is Laid(The 5 Minute Wrapup)

Feb 17, 2018

Top three reasons for Tanushree's presentation at Equitymaster Conference to be centered around a possible 30% correction.

India's Rs 1,66,276 Crore Problem(Vivek Kaul's Diary)

Feb 15, 2018

That's the loss, the government owned public sector enterprises are expected to make this year.

The Big Gamble(The Honest Truth)

Feb 15, 2018

Once you accept the fact that elections are round the corner and that this budget is geared to reach a 40% target, everything makes sense.

How I Beat the Index by 2x... And Why I Believe This Could Happen Again(Smart Contrarian)

Feb 12, 2018

Will Microcap Millionaires be able to replicate its past performance of beating the index by 2x?

More

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

MARKET STATS