RBI Second Quarter Monetary Policy Review (Hikes Repo rate-Cuts MSF by 25bps each

The Reserve Bank of India (RBI) has come out with its Second Quarter Monetary Policy review, wherein the policy stance of this meet is in line with the general consensus. The RBI has increased the Repo Rate by 25bps to 7.75% accordingly, Reverse Repo Rate under the Liquidity Adjustment Facility (LAF) determined with a spread of 100 basis points below the repo rate, stands adjusted to 6.75%. However, RBI has reduced the Marginal Standing Facility (MSF) by 25bps to 8.75%. With these changes, the MSF rate and the Bank Rate are recalibrated to 100bps above the repo rate, accordingly, Bank Rate stands adjusted to 8.75%. Moreover, RBI Increased the liquidity provided through term repos of 7-day and 14-day tenor from 0.25% of NDTL of the banking system to 0.5% with immediate effect, while keeping the CRR unchanged at 4%. However, RBI believes that WPI inflation is to remain higher than current levels through most of the remaining part of the year and it will closely monitor inflation risk while being mindful of the evolving growth dynamics.

India's Inflation came in at a seven months high of 6.46% YoY in September 2013 as compared to 6.10% YoY in the august 2013 and 8.07% YoY in September 2012. Moreover, it is expected that risk of high inflation is remain owing to significant fall in the value of INR against major currencies along with rise in crude prices. As September inflation has gone up and risk of high inflation going forward have mounted pressure on RBI to increased the Repo rate in this meet.

Source : Equity Bulls

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