Nothing more than CRR hike likely: Edelweiss
Edelweiss Research in its Reserve Bank of India’s policy preview note has said that the Central Bank is likely to hike cash reserve ratio whereas key interest rates will be left unchanged.
By ET Bureau |
MUMBAI: Edelweiss Research in its Reserve Bank of India’s policy preview note has said that the Central Bank is likely to hike cash reserve ratio whereas key interest rates will be left unchanged.
“The Reserve Bank of India (RBI) on January 29, 2010 will announce the third quarter review of the Annual Monetary Policy. The January policy review is not expected to result in change in key policy rates—repo rate (4.75%) and reverse repo rate (3.25%).
Only the reserve requirement, i.e., cash reserve ratio (CRR, 5%), is likely to be increased by 50bps. This policy will, thus, be the first major move to mark the reversal of the easy money policy adopted since October 2008. A CRR hike will not be a shocker for markets as the same has largely been factored into expectations.
Inflation has already touched 7.3% and is expected to be in the 9-10% range by March 2010. However, we believe a large part of this inflation is just statistical as we had seen a spell of “statistical deflation” for a significant part of CY09. If we try to adjust the current (March 2010) set of inflation numbers for that dip, CAGR of WPI inflation from March 2008 to March 2010 is ~5% - in fact, a tad below the long-term average of ~5.2%.
Moreover, a large part of this high inflation has been contributed by supply-side shocks in both domestic and global markets. Going further into the year, we expect inflation to dip on the back of government intervention to stabilise food prices (currently food prices have softened a tad to ~17% Y-o-Y from the peak of ~19%) and on-track rabi cultivation. On aggregate basis, with prices of food and related articles weighing ~27% in WPI, stabilising food prices will have a strong contribution to bring down the inflation number,” the report said.
“The Reserve Bank of India (RBI) on January 29, 2010 will announce the third quarter review of the Annual Monetary Policy. The January policy review is not expected to result in change in key policy rates—repo rate (4.75%) and reverse repo rate (3.25%).
Only the reserve requirement, i.e., cash reserve ratio (CRR, 5%), is likely to be increased by 50bps. This policy will, thus, be the first major move to mark the reversal of the easy money policy adopted since October 2008. A CRR hike will not be a shocker for markets as the same has largely been factored into expectations.
Inflation has already touched 7.3% and is expected to be in the 9-10% range by March 2010. However, we believe a large part of this inflation is just statistical as we had seen a spell of “statistical deflation” for a significant part of CY09. If we try to adjust the current (March 2010) set of inflation numbers for that dip, CAGR of WPI inflation from March 2008 to March 2010 is ~5% - in fact, a tad below the long-term average of ~5.2%.
Moreover, a large part of this high inflation has been contributed by supply-side shocks in both domestic and global markets. Going further into the year, we expect inflation to dip on the back of government intervention to stabilise food prices (currently food prices have softened a tad to ~17% Y-o-Y from the peak of ~19%) and on-track rabi cultivation. On aggregate basis, with prices of food and related articles weighing ~27% in WPI, stabilising food prices will have a strong contribution to bring down the inflation number,” the report said.
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