Oct 25, 2011

RBI’S CREDIT POLICY – 25TH October 2011

RBI'S CREDIT POLICY – 25TH October 2011
·         Repo Rate - Repo rate increased under the LAF by 25 bps from 8.25% to 8.50% with immediate effect.
·         Reverse Repo Rate - Reverse repo rate under the LAF, determined with a spread of 100 bps below the repo rate, automatically adjusts to 7.50% with immediate effect.
·         Interest rate on savings bank deposit deregulated with immediate effect
·         Cash Reserve Ratio - The cash reserve ratio (CRR) of scheduled banks has been retained at 6.0% of their net demand and time liabilities (NDTL).
·         Marginal Standing Facility (MSF) Rate - The MSF rate, determined with a spread of 100 basis points above the repo rate, stands recalibrated at 9.5 per cent with immediate effect.
·         Inflation expected to fall to 7% by march 2012 and further in the first half of 2012-13
·         GDP Growth – It has revised growth forecast for the year from 8% to 7.6%.
Our Take:
RBI has maintained its anti-inflationary stance by hiking the Repo rate. However it has indicated that this probably is the last of the hikes for the time being. It says "Notwithstanding current rates of inflation persisting till November (December release), the likelihood of a rate action in the December mid-quarter review is relatively low. Beyond that, if the inflation trajectory conforms to projections, further rate hikes may not be warranted"
Another landmark development has been the deregulation of the savings rate, which is negative for higher CASA banks like SBI, PNB, HDFC, ICICI & AXIS banks and relatively positive for low CASA banks such as YES Bank, Kotak Bank. The savings deposit rate would go up immediately in the system thus hurting the majority of the large banks margin. Overall the policy and other announcements are positive for the economy and markets except the banking sector which would face margin compression.
By - Aditya Birla Money Research |

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