Monetary Policy - Mr. Avinash Gupta, Assistant VP Research Equity Bonanza Portfolio Limited

Markets heaved a sigh of relief that RBI had raised Repo Rate by mere 25 basis points and did not change Bank Rate, CRR or SLR. The sectors sensitive to interest rates namely Financials, Automobiles and Realty responded positively to the monetary policy. The Reverse Repo rate has been hiked by 50 basis points but this does not affect the market as the current rates in the money market are far higher than the new Reverse Repo rate.

RBI has revised upwards the GDP growth forecast to 8.5% from 8%. It is also pointed out that fresh risks have emerged about growth in the developed world which could impact Indian growth too.

RBI has revised the year end inflation to 6% from 5.5%. The increasing demand and constraints in increasing production are important concerns. The inflation appears to be causing worry, but RBI is keeping an eye on the growth as well and adequate funds would be available to meet the needs of the business. The liquidity is not expected to be easy as the credit is growing faster than the rate at which deposits are growing.

In a significant development RBI has stated that it would carry out a mid term review of the monetary policy in addition to the review being done every quarter. The mid term review would be announced through press releases.

Source : Equity Bulls

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