The Reserve Bank of India (RBI) on Monday left interest rates unchanged but cut the CRR – Cash Reserve Ratio for banks by 25 basis points. The RBI – Reserve Bank of India said the primary focus of its monetary policy remains fighting inflation, after the Government of India unveiled a slew of reforms to boost growth and improve its fiscal situation. Reserve Bank of India hailed the government’s latest policy measures. Those included a hike in diesel price by Rs 5, limiting subsidized LPG cylinders at 6 a year per family, allowing foreign direct investments in aviation and multi-brand retail upto 49% and 51% respectively. It also decided to dilute stakes in public sector units. The Reserve Bank of India kept the Repo Rate -the key policy rate unchanged at 8% in its mid quarter monetary policy review, as expected. The Reserve Bank of India cut the cash reserve ratio, the share of deposits banks must keep with the central bank, by 25 basis points to 4.5% in a move it said will inject about 170 billion rupees (Rs.17,000 crores) of liquidity into the banking system. The RBI policy action is almost in line with most market expectations.
The RBI Cut in CRR by 50 bps to 5.50% . It infused around Rs 32,000 cr liquidity in the system on January 24, 2012. Reserve Bank of India cut in CRR by 75bps to 4.75%. It infused around Rs 48,000 cr liquidity in the system on March 09, 2012. Induced cut in policy rate by 50 bps to 8% on April 17, 2012 & a cut SLR by 1% to 23% on July 31, 2012. Earlier in the year, RBI decreased the policy or repo rate by 50 basis points in April. It slashed cash reserve ratio by 150 bps so far in 2012. Repo and reverse repo remained unchaged at 8% and 7% respectively. RBI continued with its primary policy focus in “the containment of inflation and anchoring of inflation expectations.” The core inflation did not show any sign of relief with non-food manufactured product inflation rose to 5.6% in August as against 5.1% in April. “Even as demand pressures moderate, supply constraints and rupee depreciation are imparting pressures on prices, rendering them sticky,” RBI said, reported Moneycontrol.
Many market participants were expecting the Reserve Bank of India to cut interest rates after the government announced some key policy reforms last week. But by keeping the repo rate unchanged at 25 basis points, the RBI has made it clear that it is more worried about curbing inflation in the short term. However, in a bid to ease liquidity in the system, the central bank has trimmed the cash reserve ratio by 25 basis points. INR – The Indian rupee rallied today to 4-month high by gaining 64 paise at 53.66 against the US Dollar on persistent selling of the American currency by banks and exporters as well as capital inflows amid strong equity market. Weakness of dollar in the overseas market also boosted the rupee value against the US Dollar. Capital inflows from foreign funds in equity markets also boosted the Indian Rupee.
The recent upward revision in diesel prices and rationalization of subsidy for LPG is a significant achievement but in the short-term, there will be pressures on headline inflation. Globally, as risks have risen, both the European Central Bank (ECB) and the US Fed have responded with liquidity measures intended to calm financial markets and provide further stimulus to economic activity. While these measures have certainly mitigated short-term growth and financial risks, they will also exert pressure on global asset prices, and particularly, commodity prices. Growth in several major emerging and developing economies (EDEs) is also moderating. Additionally, drought conditions in major grain-producing areas of the world and the possibility of further hardening of international crude prices in view of the fresh dose of quantitative easing impart ubiquitous risks to overall global macroeconomic prospects. A moderation in the trade deficit combined with increased inflows in response to domestic policy developments could ease pressures on the balance of payments. However, risks from global factors, in terms of both capital movements and oil prices will persist. Given these external risks, holding down the current account deficit to sustainable levels will depend on durable fiscal consolidation.
Equity Markets trimmed gains on expectations of more than what the Reserve Bank of India delivered today. The markets seemed to have already priced in the RBI’s move of a CRR cut. The Indian Rupee and bond prices weakened immediately after the RBI decision, with the yield on the 10-year bond rising 5 basis points from before the Reserve Bank of India statement to 8.17%. The one-year swap rate rose 8 bps to 7.68% from before the release. The BSE Sensex & Nifty also trimmed gains. In an unexpected, 24-hour frenzy last week, New Delhi unveiled a slate of measures to rein in a ballooning fiscal deficit and avoid a credit rating downgrade to junk. The Reserve Bank of India has held borrowing costs steady since a deeper-than-expected 50 basis point cut in April, and has repeatedly called on the government to do its part by improving its fiscal position, which had fuelled some expectation that it might cut rates as a gesture in reply to the government’s moves. The BSE Sensex had surged to its highest in 14 months, with retailers such as Pantaloon Retail India and airlines including SpiceJet rallying after the government opened up the sectors to foreign direct investment. The BSE Sensex had gained 0.88% as of 9:53 a.m., after earlier hitting its highest since July 26, 2011. The Nifty had gained 0.93%.
Please check back for new articles and updates at Commoditytrademantra.com
For More details on Trade & High Accuracy Trading Tips and ideas - Subscribe to our Trade Advisory Plans. : Moneyline