RBI cautiously reduces the repo rate by 25 bps to 7.25% - ICICI Bank Global Markets

The RBI reduced the repo rate by 25 bps to 7.25%, while keeping CRR unchanged at 4%.

Policy guidance is fairly cautious with the RBI highlighting limited room for easing, amidst upside risks to inflation from supply shortages and fuel price hikes and with CAD above sustainable levels.

The FY2014 GDP growth has been projected at 5.7%, while WPI inflation to remain range bound around 5.5%. RBI has asserted that it will endeavour the evolution of inflation to 5% by March-2014 using all instruments at its command.

The money supply, deposit and non-food credit growth in FY2014 have been projected at 13%, 14% and 15% respectively.

Banks' HTM investment has been reduced to 23% from 25% and would be effected by effected by way of reduction of at least 50 bps every quarter, beginning with quarter ending June 2013.

We continue to maintain our policy call of a 25 bps repo rate cut in the June meeting. On the liquidity front, we expect OMOs to the tune of INR 250 - 300 bn in rest of Q1 FY2014.

Source : Equity Bulls

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