With the forced liquidity constraints as the currency devolved on the nation in June ( after May 21 announcement) RBI was stuck in the middle of a rate cut leg of its policy to encourage growth. Already hampered by banks using Central Bank liquidity to the extent of INR 2 Tln instead of market, the Central bank’s rate hike onsequently in September even as the MSF hikes were redacted and brought back to the normal line may finally break the back of the markets on the verge of a bullish move from 6200.
The only inflation out of control however is the Food inflation which may not respond to any rate hikes and this rate hike may just be a mechanistic response continuing since Duvvoori Rao demitted office to stabilise the higher rate environment, in which case India may old these levels for a good six months, and in developed markets this new intermediate leg could have lasted years, till the rate cuts can begin again.
Meanwhile consumer staples will continue to see large double digit price increases to correct 2-3 years of suppressed marketing budgets and pricin pressures unrequited to keep basic sales growth alive in consumer markets
The announced policy steps however will increase bank rates and as retail lending has reounded such increases are largely going to be absorbed by consumers and however will have had debatable impacts on fueling furthr inflation now controlled by bank rates. NBFC business is already looking better in consumer durables with a clampdown on 0 interest loans and while that may not segment the market in favor of first time durable buyers that have been an absent quantity fooling marketers and policymakers, it will continue to better control the negative output gap with more advantages for NBFC lending even for banks that have already relied a fair portion of their portfolio on the sector at the expense of obviating the real winning consumer sectors or industry sectors winning n the changed scenario
RBI hiked rates 25 bp and MSF channel has returned to 100 bp over the repo rate clearing the path for a return to the Repo rate as the Bank rate.. WPI forecast has been banded to the central bank’s comfort zone as 6-7%. GDP growth is updatd to 5% for FY 2014
The banks lead the Nifty comeback post policy action as they assume the deed is done and currency will consolidate around 61-62 levels before going back to the trade deficit control led highs nearer 60-61 levels The sponsored rally ost policy is however blushingly even across non actors and non performers in the banks bunched with YES Bank, ICICI Bank and even HDFC Bank and Axis Bank. IDFC has recovered its morning deficit too. BOB is up 15 pointsand BOI is in the positive with Pharma/result candidate DRL also staging a mini rally. The short on LIC Housing ahead of results has also disappeared and tomorrow’s results are likely to see fat positives as sentiment needs a good build up and inflows ontinue to allow market makers to perform as such and the Financials are likely to reward investors who stuck through the unreasonable 2 months pre the last MSF related policy action. Further policy action unless embargoed by inflation is likely to stay with seeing the bank rate climb down from the current MSF 8.75% to the Repo rate of 7.75% ( The Revese Repo is 6.75% where RBI issues new collateral securities)
- India Morning Report: Markets negative ahead of expected rate action (awardz.wordpress.com)
- India expected to raise interest rates, roll back rupee support (uk.reuters.com)
- Morning MoneyBeat Asia: Market Sleepwalks Through Monday (blogs.wsj.com)
- Bank Policy Tuesday: RBI Governor completes policy action (awardz.wordpress.com)
- India Bank Earnings: HDFC Bank Q2 2013 jumps 30% on year (awardz.wordpress.com)
- Raghuram Rajan’s first monetary policy today: Can he please all? (profit.ndtv.com)
- India Morning Report: YES, ING Results follow up and rural consumption (awardz.wordpress.com)
- Why home loan EMIs will not fall despite easing of overnight rates (profit.ndtv.com)
- India Bank Earnings: A 20% rise in revenues for ICICI Bank, Asset quality upside not enough (awardz.wordpress.com)