Comments on RBI Policy by Mr. Amar Ambani, Head of Research, India Infoline Ltd. (IIFL)

29 October, 2013 : Comments on RBI Policy by Mr. Amar Ambani, Head of Research, India Infoline Ltd. (IIFL)

“As widely expected, RBI raised the policy Repo rate by 25 bps to 7.75%, affirming its stance of curbing inflationary pressures and containing inflation expectations. With currency stabilizing post significant abatement of external sector risks and raising of limit along with swap for FCNR-B deposits, the Central bank further reduced the MSF rate by 25bps to 8.75%. While CRR was left unchanged, RBI facilitated banking system liquidity by doubling the cap of 7-day and 14-day term Repos to 0.5% of banking system NDTL. This along with reduction in MSF rate would further soften short-term rates in the coming months. This would more substantially benefit Yes Bank, IndusInd Bank, Axis Bank, ING Vysya Bank and ICICI Bank, whose reliance on bulk deposits is significant. Even NBFCs such as LIC Housing Finance, M&M Financial and Shriram Transport Finance would stand to gain”.

 “RBI’s hawkish policy stance is likely to continue with WPI inflation firming up and persistence of elevated retail inflation. More importantly, inflationary pressures are getting generalized. In Central bank’s own assessment, WPI inflation is expected to remain higher than current levels in remainder of the fiscal and consumer inflation is expected to sustain around 9% notwithstanding some moderation in food inflation if no policy measures taken. Quite obviously, this would demand an appropriate policy response. We believe that the RBI would hike Repo rate by another 25bps at least in the remaining part of the year”.