RBI Monetary Policy:
RBI has kept key rates like repo or reverse repo unchanged. Repo and reverse repo are rates at which the RBI lends to banks and vice versa.
It has hiked the statutory liquidity ratio (SLR) to 25% from 24%.
SLR is the minimum amount of cash, gold or bonds banks need to maintain with themselves. By hiking the SLR, the RBI may be signalling its leaning towards tightening the accommodative monetary policy.
The cash reserve ratio (CRR) is kept unchanged. CRR is the minimum amount banks need to park with the RBI, was also left unchanged.
Banking sector would not be affected directly.
Inflation target upped:
While the excess liquidity in the system may have succeeded in turning the economy back on the recovery track, it could be met with its first after-effect in the form of rising inflation soon. In fact, in the mid-term review, the RBI increased its March-end wholesale price index (WPI) inflation estimate to 6.5% with an upward bias, revised from its earlier target of 5%.
The estimate for FY10 gross domestic product (GDP) growth was left unchanged at 6.0% with an upward bias.
Also, the central bank cut its FY10 credit growth target to 18% from 20% that it had set in the July monetary policy review.
Realty loans tougher:
RBI has increased the provisioning requirement for advances to the commercial real estate sector classified as ‘standard assets’ from the present level of 0.40% to 1%, a move that makes lending to the sector tougher.
RBI has kept key rates like repo or reverse repo unchanged. Repo and reverse repo are rates at which the RBI lends to banks and vice versa.
It has hiked the statutory liquidity ratio (SLR) to 25% from 24%.
SLR is the minimum amount of cash, gold or bonds banks need to maintain with themselves. By hiking the SLR, the RBI may be signalling its leaning towards tightening the accommodative monetary policy.
The cash reserve ratio (CRR) is kept unchanged. CRR is the minimum amount banks need to park with the RBI, was also left unchanged.
Banking sector would not be affected directly.
Inflation target upped:
While the excess liquidity in the system may have succeeded in turning the economy back on the recovery track, it could be met with its first after-effect in the form of rising inflation soon. In fact, in the mid-term review, the RBI increased its March-end wholesale price index (WPI) inflation estimate to 6.5% with an upward bias, revised from its earlier target of 5%.
The estimate for FY10 gross domestic product (GDP) growth was left unchanged at 6.0% with an upward bias.
Also, the central bank cut its FY10 credit growth target to 18% from 20% that it had set in the July monetary policy review.
Realty loans tougher:
RBI has increased the provisioning requirement for advances to the commercial real estate sector classified as ‘standard assets’ from the present level of 0.40% to 1%, a move that makes lending to the sector tougher.
The RBI upping the provision for lending to real estate will affect affordable housing, realty projects, HDIL said. “We will have to up prices to nullify the RBI hike”.
Realty sector might see correction.
RBI view:
“There has been a discernible improvement in the global economic outlook since the First Quarter Review in July 2009,” RBI Governor Duvvuri Subbarao said, in his review statement. “In India too, there are definitive indications of the economy reverting to the growth track. Accordingly, attention around the world, as also in India, has shifted from managing the crisis to managing the recovery.”
Subbarao admitted that India faced a unique dilemma that developed nations did not face — that of inflation: “First, most of these countries do not face an immediate risk of inflation. Indeed, in several advanced economies, the concerns were about a possible deflation, which are just about waning. On the other hand, India is actively confronted with an upturn in inflation.”
He added that around the world, timing an exit from the stimulus packages was a central issue in our policy matrix. As the RBI has indicated in several public statements, our current monetary stance is not the steady state and we need to reverse the expansionary stance. This could mean that RBI may hike CRR in Dec09.
Also the hike in SLR would support the large borrowing programme of the Centre and states. This could augur well for infrastructure projects (companies).
Realty sector might see correction.
RBI view:
“There has been a discernible improvement in the global economic outlook since the First Quarter Review in July 2009,” RBI Governor Duvvuri Subbarao said, in his review statement. “In India too, there are definitive indications of the economy reverting to the growth track. Accordingly, attention around the world, as also in India, has shifted from managing the crisis to managing the recovery.”
Subbarao admitted that India faced a unique dilemma that developed nations did not face — that of inflation: “First, most of these countries do not face an immediate risk of inflation. Indeed, in several advanced economies, the concerns were about a possible deflation, which are just about waning. On the other hand, India is actively confronted with an upturn in inflation.”
He added that around the world, timing an exit from the stimulus packages was a central issue in our policy matrix. As the RBI has indicated in several public statements, our current monetary stance is not the steady state and we need to reverse the expansionary stance. This could mean that RBI may hike CRR in Dec09.
Also the hike in SLR would support the large borrowing programme of the Centre and states. This could augur well for infrastructure projects (companies).
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