Sensex, Nifty recover; RBI cuts repo rate by 50 bps

Moneycontrol Bureau11:55 am Market Update: Equity benchmarks are still under pressure, though showed smart recovery from day's low. The Sensex declined 97.82 points to 25519.02 and the Nifty fell 36.70 points to 7759. About 801 shares have advanced, 1338 shares declined, and 98 shares are unchanged on the BSE.11:50 am FPI investment limits: RBI says the limits for FPI investment in central government securities will be increased in phases to 5 percent of the outstanding stock by March 2018.In aggregate terms, this is expected to open up room for additional investment of Rs 1.2 lakh crore in the limit for central government securities by March 2018 over and above the existing limit of Rs 1,53,500 crore for all government securities (G-sec).
The limits for FPI investment in debt securities will henceforth be fixed in rupee terms.Additionally, there will be a separate limit for investment by FPIs in the state development loans (SDLs), to be increased in phases to reach 2 percent of the outstanding stock by March 2018. This would amount to an additional limit of about Rs 50,000 crore by March 2018, it says.

The increase in limits will be announced every half year in March and September and released every quarter.

11:45 am Liquidity conditions eased considerably during August to mid-September. In addition to structural factors such as deposit mobilisation in excess of credit flow, lower currency demand and pick-up in spending by the government contributed to the surplus liquidity.In response, the Reserve Bank conducted variable rate reverse repos of overnight and longer tenors ranging from 2 to 20 days. As a result, the average net daily liquidity absorption by the Reserve Bank increased from Rs 12,000 crore in July to Rs 26,100 crore in August and further to Rs 54,400 crore in September (up to September 15). Money market rates generally remained below the repo rate. 11:40 am Rate cut transmission by banks?: RBI says the Federal Reserve has postponed policy normalisation. Markets have transmitted the Reserve Bank’s past policy actions via commercial paper and corporate bonds, but banks have done so only to a limited extent.The median base lending rates of banks have fallen by only about 30 basis points despite extremely easy liquidity conditions. This is a fraction of the 75 basis points of the policy rate reduction during January-June, even after a passage of eight months since the first rate action by the Reserve Bank. Bank deposit rates have, however, been reduced significantly, suggesting that further transmission is possible.11:35 am RBI says while the Reserve Bank’s stance will continue to be accommodative, the focus of monetary action for the near term will shift to working with the Government to ensure that impediments to banks passing on the bulk of the cumulative 125 basis points cut in the policy rate are removed.The Reserve Bank will continue to be vigilant for signs that monetary policy adjustments are needed to keep the economy on the target disinflationary path.

The fifth bi-monthly monetary policy statement will be announced on December 1, 2015.11:30 am RBI on GDP growth: With global growth and trade slower than initial expectations, a continuing lack of appetite for new investment in the private sector, the constraint imposed by stressed assets on bank lending and waning business confidence, output growth projected for 2015-16 is marked down slightly to 7.4 percent from 7.6 percent earlier.11:25 am RBI on H2FY16: The modest pick-up in the growth momentum in the first half of 2015-16 benefited from soft commodity prices, disinflation, comfortable liquidity conditions, some de-clogging of stalled projects, and higher capital expenditure by the central government. Underlying economic activity, however, remains weak on account of the sustained decline in exports, rainfall deficiency and weaker than expected momentum in industrial production and investment activity.11:20 am Inflation: RBI says focus should now shift to bringing inflation down to 5 percent by FY17-end. "We expect CPI inflation to average around 5.5 percent in October-December & 5.8 percent in Jan-March 2016 and expect CPI inflation to moderate to 4.8 percent in January-March 2017."11:15 am RBI says foreign investment capital in government bonds to be relaxed in phases to 5 percent by March 2018. Held-to-maturity limit for government bonds holding cut to 21.5 percent from 22 percent w.e.f January 2016, it adds.