Posted at 2:37 PM , on December 9, 2016
The RBI monetary policy announced on December 07th 2016 had an element of surprise in that it maintained status quo on repo rates. Considering the low levels of inflation, weak growth and the side effects of demonetization, the markets were expecting a rate cut in the range of 25-50 bps. However, the RBI chose to err on the side of caution.. While the details of the deliberations of the Monetary Policy Committee (MPC) will be available on December 21st, there was virtual unanimity on the decision to maintain status quo on rates. Here are the key highlights of the monetary policy announcement… Continue reading
Posted at 6:49 PM , on September 24, 2015
It almost appears like a fait accompli. The US Fed has maintained status quo on rates in September and hence the door is open for Dr. Rajan to cut rates in his September 29 review of monetary policy. Actually, it may not be as simple as that. A rate cut will not be as simple as it appears to be. From a practical standpoint, the RBI governor will be weighed down by a plethora of variables before he decides on a rate cut on September 29. These variables will impact not only the rate cut decision but also the extent of rate cut that the RBI will undertake in the forthcoming policy meet.
Posted at 11:03 AM , on September 14, 2015
Why retail investors must seriously look at equities now…
If you broadly consider the asset mix of Indian households, it is a telling story. We have roughly $1.3 trillion in bank deposits and FDs. We have another $1 trillion that is locked up in gold; in a variety of forms. But, equity as an asset class constitutes just about $350 billion of household wealth. Unlike gold and FDs, which are well spread out, equities among retail investors is fairly low.
Posted at 5:16 PM , on September 4, 2015
Over the last couple of days, banking stocks have been under considerable pressure on the NSE and the BSE. The obvious reasons were always there. Credit off-take was languid, NPA is a major problem, PSU banks are suffering on efficiency metrics etc. But the real issue was an innocuous announcement made by the RBI a few days ago. Let us first understand the implications of this notification by RBI and why it is so important…
What is this RBI notification on base rates all about?
On September 1st, the RBI issued a notification to bring about uniformity in the calculation of base rates by banks. The RBI has suggested using marginal cost of funds as the guiding data point to set base rates for borrowers. Typically, there is no uniform formula adopted by banks to decide on the base rates although it is linked to the repo rates that the RBI announces from time to time. Most banks use the average cost of funds to determine the base rate for lending. This base rate, as the name suggests, acts as the base. Subsequently, depending on the purpose of the loan and the quality of the borrower the spread is decided.
Posted at 11:39 AM , on August 13, 2015
There was the much needed relief from the CPI and the IIP numbers that were announced on 12th August. The index of industrial production (IIP) for June 2015 came in at an encouraging 3.8%, a sharp uptick from the 2.5% previously. Similarly, retail inflation for July 2015, as measured by the Consumer Price Index (CPI) fell to 3.8% as against a high of 5.4% last month. On balance, the IIP was above consensus estimates while the CPI was below the consensus estimates giving the much needed relief to the Indian economy; at a time when it has been racked by two rounds of devaluation of the Chinese Yuan. Continue reading