Credit Policy Review, January 25, 2011: Bonanza

Bonanza has come out with a review on Credit Policy, January 25, 2011. According to the research firm, market has got what it was expecting. The rate hike is mere 25 basis points and accordingly the market has reacted positively. Expectedly banking stocks looked up.

• It also suggests that RBI considers growth to be more important than the need to contain inflation. In fact RBI had indicated that the interest rate is not an effective instrument to restrict demand of food which is inelastic in nature.
• The inflation indicated for the current fiscal has been upped to 7.00%. The GDP growth target has been maintained at 8.5%. Current account deficit has been projected at 3.5% of GDP.
• RBI has indicated that the supply has to be increased. The action has to be initiated by other agencies to take steps to increase supplies. The market would be looking forward to the steps from the government to address the supply side issues. This would make investors look forward to the budget for an insight in to how the government is addressing this issue.
• The market would get into wait and watch mode as the impact of this credit policy sinks in.

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