RBI finally says yes, but forward guidance remains cautious

A A

Indranil Pan: Jan 30 2013, 02:29 IST

It must have been another tough call for RBI, but it is heartening to note the tilt now is more towards growth than inflation. In terms of RBI’s own mindset, the risks to inflation ballooning once more are limited. No wonder, RBI brought down its own inflation projection to 6.8% for March end compared with the previous projections of 7.5%. Interestingly, this denotes a U-turn in RBI’s inflation expectations since the previous credit policy review in December, when inflation was projected to have risen to 7.5% from 7% at end-March 2013.

Further, RBI seems a bit concerned that the growth is significantly below trend. While it has brought down its FY2013 growth estimates to 5.5% from 5.8% earlier, RBI admits the growth compression is a result of contraction from the demand side with domestic investment activity as also consumption demand having slowed. Overall, the softening status on growth and also with inflation under control, the RBI could afford to bring down the Repo rate by 25 bps.

Along with this, RBI has also brought down CRR by 25 bps, likely to release around R18,000 crore of liquidity into the system. This, we think is a smart move to ensure the repo cut of 25 bps percolates down to the real sector of the economy. To put this in perspective, a mere 25 bps cut in Repo rate might not have been effective in bringing down the commercial lending rates as deposit growth of the banking sector had been relatively muted. This had

... contd.

Ads by Google

Single Page Format

1 | 2 | 3 | Next

‘Surprise fall in CAD, inflation needed for further rate cuts’RBI delivers after a pregnant pauseRate-sensitive scrips end in red on growth worries Not much to cheer for cos with lower interest cover

Previous Story Rate-sensitive scrips end in red on growth worries Next Story Grain silos project on, FCI plans tender next month

Reader's Comments| Post a Comment

Be the first to comment.