Live news , top stories, corporate news, company news, sector news, economy news, results analysis news, ceo interviews, fund manager interview, advisor interview, market news, bazaar talk, hot stocks news, ipo news, commodities news, mutual fund news, insurance news, news wire
29 March, 2015 19:10 IST
Strong signal emerges for rate reversal cycle starting from Jan 13: Moses Harding
Source: IRIS | 18 Dec, 2012, 12.10PM
Comments  |  Post Comment

The RBI had to choose between delaying the rate cut (to January-March 2013) maintaining its earlier stance of ruling out rate actions till headline (wholesale and retail) inflation stays at elevated levels keeping real interest rates low, and delivering the rate cut to support growth and to be seen with the Government during this crisis time. The choice was between reversal from its earlier stance and biting the bullet!

The "baby step" approach of delivering 25 bps CRR cut is not seen as firm monetary policy stance of RBI and highlights its cautious and indecisive stance, unable to choose between the cup and the lip! RBI has strong reasons to delay rate cut action; elevated inflation seen as major risk to growth, low real interest rates not hurting consumption and investments and downside risks to growth from supply side constraints.

On the other side, while the downtrend in headline inflation is seen as sustainable with good momentum into end of FY13, there is serious headwind to growth momentum in the absence of external support. The tight monetary policy since March 2009 is seen as extended one and it is time for reversal into pro-growth monetary stance. RBI can keep the system liquidity in deficit mode while delivering baby-step rate cut of 25 bps and move the operating policy rate from Repo to Reverse Repo rate on squeeze in the negative spread between Growth and headline inflation.
 
RBI firmly stayed with stated earlier stance and kept rates unchanged but with very positive guidance of being in preparedness for shift into growth supportive monetary stance. If inflation print continues to trend down into the next couple of months, there is high probability of rate action in January 2013. The preference of liquidity injection through OMO bond purchases (instead of delivering CRR cut) is seen as positive. When the system is holding above 5% of NDTL as excess SLR investments (net of drawdown from LAF/Repo counter), CRR cut will not be seen as monetary measure to support growth.

Over all, RBI did not opt to deliver pleasant surprise to the market through rate cut this time, and seen as disappointment to most stake holders including the Government. However, strong signals have emerged for rate reversal cycle starting from January 2013; risk factor to this expectation will be from elevated headline inflation. There is no guarantee of rate cut in January but the expectation in January-March 2013 is retained. The disappointment of the market reflected in post-policy price action driving the NIFTY down below 5840 and 10Y Bond yield into 8.15-8.18%. The bullish undertone and resultant rally is seen to be delayed but not denied!

(Contributed Moses Harding, head - ALCO and economic & market research at IndusInd Bank)

Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.

Comments Post comment 
 Post Comment
Name Email
Comment
Security Code type    into this box
Related Articles
Tata Teleservices wins spectrum in 800 MHz band in Mumbai & Maharashtra - 27-Mar-2015 18:12
Fortis to sell Singapore hospital to Concord Medical Services - 27-Mar-2015 16:25
Strides Arcolab launches generic drug Sofosbuvir in India - 27-Mar-2015 15:16
L&T Construction wins orders worth Rs 17.11 bn - 27-Mar-2015 10:20
Reliance Jio Infocomm bids total Rs 100.77 bn in spectrum auctions - 27-Mar-2015 10:09
RCom bids total Rs 42.99 bn in spectrum auctions - 27-Mar-2015 10:01
NTPC becomes first PSU to issue bonus debentures - 27-Mar-2015 09:53
Bharti Airtel acquires Prime Spectrum - 27-Mar-2015 09:13
Home  |   Shares  |   F&O  |   Mutual Funds  |   Loans  |   Insurance  |   News Centre
Wealth Tracker  |   Newsletters  |   Tax Corner  |   NRI Centre  |   Advertise
© All rights reserved. IRIS Business Services Limited
A Disclaimer