Where are the Interest Rates Going?
Market got the shot in the arm hearing the unexpected announcement from the RBI, hiking the CRR from 0.5% point. The current move will suck 13500 Crore from the system. So what are reasons behind this move of RBI???
The Non-Food Credit is growing at the heady rate of 30% YTD, the growth in Money Supply is also above the level where RBI can feel comfortable, (M3) is growing at the rate of 19.4% YOY compared to RBI's previous estimate of 15%, and another reason of huge growth in money supply is the large inflow of dollars in India. RBI is sterilizing the inflow of dollars by issuing the same amount of Indian Currency.
Inflation is also showing the upward trend both in WPI & CPI, with the prices of Crude Oil and Base Metals still ruling high, the ghost of inflation is giving many sleepless night to Y. B. Reddy. There is one more issue of strain on existing capacity utilization, with the demand of the products ruling high, the corporate India is looking to hike the capacity like never before, that could further add to the inflation.
What could be the effect of current move???
As far as the question of credit growth is concerned, it is already showing the sign of cooling down a bit, from 35% to 30%, and as soon as the high base effect come into picture, it may further moderate to a level of around 25-27%, but any sharp fall is likely, as there is a demand of money from all sectors of the economy specially from infrastructure sector.
Inflation in India is not only an economical issue but also a political one. The current government is also worried about the rising inflation. Given the conservative profile of the governor, one could expect further steps to contain inflation.
Not only the credit growth and inflation, but as we are entering into the last quarter of the financial year, the liquidity position is going to remain tight. The statements of finance minister and RBI are also indicating toward more rate hikes in the future. All in all, one could expect more rate hikes from the RBI in the future.
Hope u guys like it...
take care...
Market got the shot in the arm hearing the unexpected announcement from the RBI, hiking the CRR from 0.5% point. The current move will suck 13500 Crore from the system. So what are reasons behind this move of RBI???
The Non-Food Credit is growing at the heady rate of 30% YTD, the growth in Money Supply is also above the level where RBI can feel comfortable, (M3) is growing at the rate of 19.4% YOY compared to RBI's previous estimate of 15%, and another reason of huge growth in money supply is the large inflow of dollars in India. RBI is sterilizing the inflow of dollars by issuing the same amount of Indian Currency.
Inflation is also showing the upward trend both in WPI & CPI, with the prices of Crude Oil and Base Metals still ruling high, the ghost of inflation is giving many sleepless night to Y. B. Reddy. There is one more issue of strain on existing capacity utilization, with the demand of the products ruling high, the corporate India is looking to hike the capacity like never before, that could further add to the inflation.
What could be the effect of current move???
As far as the question of credit growth is concerned, it is already showing the sign of cooling down a bit, from 35% to 30%, and as soon as the high base effect come into picture, it may further moderate to a level of around 25-27%, but any sharp fall is likely, as there is a demand of money from all sectors of the economy specially from infrastructure sector.
Inflation in India is not only an economical issue but also a political one. The current government is also worried about the rising inflation. Given the conservative profile of the governor, one could expect further steps to contain inflation.
Not only the credit growth and inflation, but as we are entering into the last quarter of the financial year, the liquidity position is going to remain tight. The statements of finance minister and RBI are also indicating toward more rate hikes in the future. All in all, one could expect more rate hikes from the RBI in the future.
Hope u guys like it...
take care...
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