Shock treatment: Crash, boom, bank! - IIFL

The weakening rupee has been giving a tough time to policy makers. The RBI announced a host of measures which will arrest speculation in the currency. The marginal standing facility and the bank rate have been raised to 10.25% from 8.25%. The RBI has decided to lower rupee liquidity in the system by capping the liquidity adjustment facility at (LAF) Rs 75,000 crore from Wednesday. Bonds could see a free fall as the central bank has decided to conduct open-market sales of government securities worth Rs 12,000 crore on July 18 which will further suck rupee liquidity out of the system.

One will hope that the remedies are not worse than the disease. Collateral damage will be seen in the stock market as the indices are set to crash at open. Companies will be hit as short-term borrowing costs could rise by a couple of percentage points. Banks, especially, will be at the receiving end on the bourses today.

Source : Equity Bulls

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