Economy Update - June 19, 2012 - Emkay

Mid-quarter Monetary Policy review

- Another twist-and-turning policy review with status-quo in terms of monetary actions. Repo rate unchanged at 8.0%. Reverse repo / MSF stand at 7.0%/9.0% resp. CRR at 4.75%.

- RBI prefers sector specific measures over CRR cut with export credit refinance limit enhanced to 50% (15% earlier). This will release liquidity of Rs300bn or 50bps of CRR cut.

- While RBI draws comfort from decline in core WPI inflation, monetary easing will not necessarily elicit positive supply side responses and rather will contribute to inflation.

- In the current context of structural imbalances, we believe the effective tool to tackle the growth slowdown will be OMO's / CRR cut rather than a repo rate cut.

Source : Equity Bulls

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