Expect further hike in interest rates by RBI: Angel
Angel Broking has come out with its review on RBI' monetary poilcy. "Expectations of CPI by the central bank suggest that for the coming months it would hover above 9 percent. Taking cues from this forecast, the RBI could stick with the target of reducing inflation first; hence, further rate increases are likely," says Angel.
October 30, 2013 / 14:03 IST
RBI second-quarter monetary policy review by Angel Broking
Continuing with the policy stance in the Mid-Quarter review held in Sep’13, the RBI (Reserve Bank of India) yet again increased interest rates. The repo and the reverse repo rate has been raised by 25 bps to 7.75 percent and 6.75 percent respectively.Repo rate is the rate at which the central bank lends money to the commercial banks during times of shortfall of funds. This rate is also used by the central bank as a tool to control inflationary pressures. The reverse repo rate on the other hand is the rate at which the central bank borrows money from domestic commercial banks. This tool helps the central bank to control money supply in the economy.Keeping the issue of rising inflation in mind, the stance of the central banker has been that of price stability. Given the current scenario of sharp jump in food prices, the interest rate hike by the RBI comes at a time when the Indian economy is slowing. But the current target of the RBI is to strike a balance, first by reducing inflation and second by targeting growth. Hence, the current inflationary pressures become the prime focus to be dealt with on an immediate basis.In addtion to increase in interest rates, the central banker lowered the MSF (Marginal Standing Facility) rate by 25 bps to 8.75 percent. This boost in short-term lending facilities led to rise in positive sentiments in the domestic markets in yesterday’s trade. The MSF is the effective policy rate of the RBI as banks can borrow only a limited part of their fund requirements through the repo window and thus they utilise the MSF facility in order to meet their emergency requirements.The monetary policy announcement was largely in line with expectations and thus led to a sharp run up in domestic equities that closed almost 2 percent higher yesterday (29th Oct’13). A calibrated change in the liquidity measures will re-align the interest rate corridor. Liquidity boosting measures by the RBI lifted the BSE Bankex more than 4 percent higher in 29th Oct’13.Further hike in interest rates expected
Expectations of CPI by the central bank suggest that for the coming months it would hover above 9 percent. Taking cues from this forecast, we feel that the RBI could stick with the target of reducing inflation first; hence, further rate increases are likely.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. 
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