RBI policy review: Focus on growth likely to return
SMC Global has come out with its report on Reserve Bank of India (RBI)'s mid-quarter monetary policy review. According to the research firm, central bank is expected to shift gears in order to focus on growth through monetary easing in Jan 2012; at the same time keeping a track on inflationary pressure.
December 18, 2012 / 16:55 IST
SMC Global has come out with its report on Reserve Bank of India (RBI)'s mid-quarter monetary policy review. According to the research firm, central bank is expected to shift gears in order to focus on growth through monetary easing in Jan 2012; at the same time keeping a track on inflationary pressure.
RBI continued with a wait and watch strategy on the policy stance, in-line with consensus expectation, by maintaining a status quo. Being pegged to repo rate, reverse repo rate is thus constant at 7.0%; Marginal Standing Facility (MSF) stands at interest rate of 9.0%, 100 bps above repo rate.Statutory Liquidity Ratio (SLR) has been maintained at 23.0%; Cash Reserve Ratio (CRR) has been unchanged at 4.25% in-spite of liquidity pressure witnessed in the system.RBI has acknowledged recent reformist measures announced by government and anticipate economy to be set on the recovery path in the near term. However, it remains cautious on the spillover effect of global slowdown on emerging economies including India.Inflation has started to stabilize in the range predicted by the central bank over the past 2 months. Further slowdown in WPI is anticipated in the near term on account of increasing rabi sowing coverage as well as decline in prices of metals and chemicals.Outlook: Reserve Bank of India (RBI) continued to maintain a status quo on account of uncertainty over inflationary trajectory. However, it reiterated the fact that easing inflation will provide an opportunity to shift focus on growth rather than inflation management. Further, RBI is set to conduct OMOs in order to arrest any liquidity constraints which might come in way for smooth functioning of the financial system.In our view, we expect central bank to shift gears in order to focus on growth through monetary easing in Jan 2012; at the same time keeping a track on inflationary pressure. Currently, we do not foresee a material change in lending or deposit rates. However, we anticipate a material decline in interest rates in 4QFY13 with RBI shooting its first bullet to cut down rates which will provide some comfort to corporate facing high financial expense. Banks will also breathe a sigh of relief as further deterioration in asset quality will be toned down. Keeping in mind, lower interest rate regime likely to hit the system, we recommend accumulating banks with prudent asset quality and high retail base including Axis Bank, ICICI Bank and HDFC Bank.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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