Even as bond yields eased to their lowest in nearly five months on Wednesday after the US Federal Reserve led central banks in a round of rate cuts to try and stave off a global recession, Indian bankers and corporates hope for a rate cut.
The benchmark 10-year bond yield ended at 7.98%, off the session?s trough of 7.94%. It had ended at 8.11% on Tuesday. Said Tapan K Bhaumik, economist with JK Organisation. ?In the next six months, we are likely to see this turmoil continuing. The global crisis is likely to affect most of the emerging economies mainly Asia. We are already seeing the stock markets tumbling and the rupee weakening in a big way.?
?The extent of the exposure to the financial companies is still not known. We expect the central bank to go in for another round of CRR cut by 100 bps depending on how inflation pans out. They may also get into slashing the bank rate. The focus today entirely remains on liquidity crunch,? he added.
Allen CA Pareira, CMD, Bank of Maharashtra said, ?We can?t strictly go for a similar cut in rates as problem was different in our case; We are faced with liquidity problem. Banks world over can now borrow at lower rates and they will also be able to lend at cheaper rates. But I don?t expect any major shift in policy in India as inflation number was still high.?
The RBI reduced the CRR to 8.50% effective from October 11. Describing it as an ?ad hoc measure to manage liquidity?, the move is expected to release Rs 20,000 crore into the system. Though the statement indicates that ?price stability remains an overriding priority?, with this CRR cut the message is that the interest rate cycle in India has peaked.
This also leaves room wide open for more CRR cuts if liquidity comes under pressure as global sentiments remain fragile and the Indian Rupee (INR) continues to weaken.
?Going forward, we see policy rates on hold, with the RBI reducing the CRR further by another 100 bps by end FY 2009,? said Standard Chartered Bank in a report.
?The recent developments in global financial markets will erode risk appetite further, implying more pressure on the rupee to weaken. Here, the role of the RBI in defining the floor would remain pivotal as sharp weakness in the currency will impinge negatively on inflation,? it added.
