The surge in investment by banks in Statutory Liquidity Ratio securities remained up to 29 percent on a yearly basis in the reporting quarter.
Oil bonds alone aren’t to blame for high petrol and diesel prices. Higher crude prices and increases taxes are also responsible
For better transmission, the structural factors should first be resolved. That’s a tough task and prescribing interest rate formulae is the easy way out.
The Reserve Bank of India (RBI) on Wednesday kept its key lending rate —the repo rate—unchanged at 6.25 percent against a widely-anticipated cut of 25-50 basis points.
At issue is the requirement that the largest US banks set aside USD 6 of capital for every USD 100 of assets on their books - double what they had to hold before.
Credit Suisse' Neelkanth Mishra expects repo rate to fall to a decade low in the coming quarters. He says that beginning December the market may see a robust and widespread pick-up which may boost indices.
Reserve Bank Governor Raghuram Rajan kept key rates unchanged at his last policy review before he bids adieu early September.
Until the announcement, only 7 percent of the SLR bonds could be counted under LCR bonds.
The RBI has cut repo rate four times (125 basis points) since January 2015. But the banks, Governor Rajan highlighted, have passed on less than half of the rate cuts to customers.
Going ahead, the RBI will follow developments on commodity prices, especially food and oil, even while tracking inflationary expectations and external developments.
Chetan Ahya, Managing Director & Chief Economist Morgan Stanley, believes the 7th Pay Commission won't threaten the government's fiscal deficit target as the 12-months trailing number is right now at 3.4 percent.
Chris Wood, CLSA says foreigners will want to buy more Indian bonds given RBI Governor Raghuram Rajan's new inflation targeting regime, based on CPI, while the relaxation in the SLR should create more room for banks to lend.
Suresh Ganapathy of Macquarie says a 30-40 basis points lending rate cut will result in 15-20 bps compression in NIMs for PSU banks and maybe just a 10 bps hit for private sector banks
The focus of monetary action in the near term will now shift towards removing impediments in rate cut transmission by banks, the RBI said.
Abheek Barua, chief economist at HDFC Bank, says the emphasis is shifting towards consumption through OROP and the 7th Pay Commission. At the same time, financial savings may not pick-up if inflation rises and real rates fall
This once the monetary policy won't surprise. A 25 basis point (bps) cut in the repo rate appears a given. For one, the governor himself told CNBC at Jackson Hole that he is "still in accomodation mode," and that he is "not done" with cutting rates.
State-owned Punjab National Bank on Wednesday reduced interest rate on fixed deposits on select maturities by up to 0.50 percent.
According to Anand Rathi Financial Services, if the lower inflation projections by the RBI materialise (our estimates also show inflation softening), the RBI might in end 2015 pare the rate by a further 25bps, "Monetary Policy - Rates likely to persist at current levels in 2015", says the report.
Reserve Bank of India is likely to keep the benchmark repo rate unchanged at 7.25 percent in its policy review meet next week, a DBS report says.
The slowdown in factory output growth also led to the companies turning cautious on their hiring plans, HSBC said, while adding that RBI is likely to cut interest rate with inflation under control and growth losing steam.
The Reserve Bank of India on Tuesday reduced repo rate by 25 basis points to 7.25 percent and kept the CRR and SLR unchanged.
The market has fallen sharply after RBI has kept cash reserve ratio (CRR) unchanged. The Sensex is down 274.08 points or 0.9 percent at 27574.91 and the Nifty is down 93.25 points or 1.1 percent at 8340.15. About 818 shares have advanced, 1243 shares declined, and 128 shares are unchanged.
Indian indices are expected to open in green with the SGX Nifty, an indicator of pre-market opening, up around 17 points to 8744 at 7:45 hrs.
Chetan Ahya, MD, Morgan Stanley believes there is enough liquidity available in the banking system and therefore, there does not seem to be any justification for a CRR cut by the RBI.
Industry bigwigs such as Rahul Bajaj and Adit Godrej hope for a rate cut. Though Bajaj believes a rate cut tomorrow is highly unlikely. Godrej on the other hand is also hoping for some action on the CRR and SLR front.