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· Repo Rate
– The repo rate under the liquidity adjustment facility
(LAF) has been reduced by 25bps to 7.75%
· Reverse Repo Rate
– Reverse repo rate, determined with a spread of 100 bps
below the repo rate, automatically adjusts to
6.75%.
Our
Take
The policy was largely in line with market expectations.
As a result of a 25bps reduction in the CRR, around Rs.180bn of primary
liquidity will be injected into the banking system. Going forward, the RBI has
indicated that there is an increasing likelihood of inflation remaining range
bound around the current levels going into 2013-14, which provides
space, albeit limited, for monetary policy
to give greater emphasis to growth risks. On the liquidity front, the RBI
commented that, it would continue to manage liquidity to ensure adequate flow of
credit to the productive sectors of the economy.
Commenting on guidance, the RBI said that, initially
there was a pause in the policy rate reduction stance as there were no
corresponding fiscal measures/ adjustments to improve the investment climate and
non-food inflation risk also persisted. Now that some of this is getting
addressed, the stance is being reviewed. This perhaps gives us an indication
that the RBI would further act if the current fiscal consolidation stance of the
government is reflected in its Union
Budget.
Overall we believe, the credit policy is positive for
the markets. The cut in CRR further reduces the cost for banks. Our markets
continue to look good and we remain positive going into the budget…..advise
buying quality stocks with every fall in the
markets
