What's in store after 8 rate hikes in FY11? - 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?  

What's in store after 8 rate hikes in FY11?

Mar 17, 2011

Inflation is the nemesis that has been haunting the RBI for the greater part of FY11. For the eighth time this fiscal the RBI used its monetary policy tools to rein in price rises. The RBI raised the rates at which it borrows from (reverse repo) and lends to (repo) banks by 0.25% each. Thus the repo rate now stands at 6.75% and the reverse repo rate at 5.75%.

The economic growth estimate still remains intact at 8.6% for FY11. Credit growth has also been above the central bank's target. However, inflation is 1% off target. The inflation for March 2011, as per the WPI (wholesale price inflation) is now estimated to be at around 8%, compared to the target of 7%.

There has been some easing in terms of food price inflation, and there are a number of measures in the latest Union Budget which will help control demand-supply imbalances and increase agricultural productivity.

But, the disastrous news flashing from Japan has made us forget two important concerns. Oil prices and Middle East politics. While oil prices may have eased a bit lately, since Japan is a large oil consumer, they may be back up very soon. High crude prices are of major concern to our central bank. Troubles in Libya and Bahrain have not eased as yet. And with threats of a nuclear disaster in Japan, the RBI expects that Japan may substitute thermal energy for nuclear power. This may impact prices of crude oil even further. Either way, at over US$ 100 per barrel, it is still way over comfort levels.

Increased commodity prices, including coal prices and fuel prices are a big concern. It impacts customer wallets, businesses, and overall economic growth. But more importantly it also impacts the fiscal deficit in two ways. Firstly with an increased import bill, and secondly due to higher subsidy costs.

So what does the future hold? With inflation still above comfort levels, the regulatory watchdog has indicated that it will continue with its current anti-inflationary stance until further notice. With the banking sector's loan growth at 23% YoY in FY11, incremental off takes to the retail segment may get marginally hurt in FY12. But what really concerns us is the impact on investment growth and economic activity.

Equitymaster requests your view! Post a comment on "What's in store after 8 rate hikes in FY11?". Click here!

1 Responses to "What's in store after 8 rate hikes in FY11?"

RAM KUMAR GUPTA

Mar 31, 2011

I am of the opinion that increase in repo rate and reverse repo rate by RBI will have no impact as presently the banks are having sufficient liquidity. The banks have larger part of their investment in Govt Securities ie. SLR securities. The Governor of RBI Dr
Subbarao has repeated said that the Banks should not focus on increasing the NII. It is indication that the credit must be made available at lower rate of interest and the Banks must cut their operating cost not only by reducing their expenses but also proper monitoring of advances as a large chunk of Profit goes for provisioning for NPA resultingof which net NPA are shown to the lowest level. The Bank should make their apprasial and monitoring of advances more effective and value added. Furthr it is needless to mention that in most of the cases, the delay in taking action/steps results in creating more NPAs. A stich in time saves nine. But nobody wants to bell the cat.
The money supply to the needy sector either through Banks, through capital market, through Post offices or any method will certainly come. The people do not keep their funds in cash in their hosues as in old ages but circulate it in the money market in any of the way.
As reagards, oil prices, yes! this is a matter of conern specifically keeping in view the international situation where Libya is in trouble. The unfortunate situatin in Japan is also a matter of concern. But I doubt that generation of newclear power is going to be ignored in the time to come except that more care shall be taken for safety which may increase the cost. This situation will help so many coutries specifically for growth of Indian economy becasue of demand from India.
Over all every thing is good and any further minor increase in rate of interest is not going to hamper the growth of GDP.

Like 
  
Equitymaster requests your view! Post a comment on "What's in store after 8 rate hikes in FY11?". Click here!

More Views on News

HDFC Bank Posts Good Q4 Performance Amid Covid-19 Second Wave (Company Info)

Apr 20, 2021

Key takeaways from HDFC Bank's March quarter (Q4FY21) results.

How the YES Bank Collapse Unfolded - 10 Points (Sector Info)

Mar 9, 2020

A timeline of how YES Bank went from a stock market darling to a pariah.

Today's Stock Market Crash: 10 Points (Sector Info)

Mar 6, 2020

Top factors that dragged the markets lower today.

More Views on News

Most Popular

Commodities Trading: From Pits to Screen

Trading in commodities is perhaps as old as the human civilization. Find out how it will unfold in the future

India: Recovery Stalled by Vaccine Games? (The Honest Truth)

Apr 13, 2021

Ajit Dayal on how India's vaccine strategy will impact the markets.

A Stock with 700% Return Potential Comes with Additional Payoffs (Profit Hunter)

Apr 15, 2021

Narayana Murthy was one of the first unicorn founders to get the backing of this entity...

Top 3 Nifty ETFs to Buy Now (Fast Profits Daily)

Apr 20, 2021

In this video I tell you the three Nifty ETFs I think are the best.

11x Bankruptcy to Bluechip Stock: A Rare India Revival Story (Profit Hunter)

Apr 16, 2021

There is no stopping this 11-bagger stock from significant upside.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE BANKEX


Apr 20, 2021 (Close)

MARKET STATS