RBI has not changed any of the key policy rates. All the rates including the Reverse Repo remain the same. The cash reserve ratio (CRR) has also been left untouched by the RBI.
RBI Policy Snapshots:
RBI keeps bank rate, repo rate, reverse repo rate unchanged
RBI keeps key policy rates unchanged
RBI keeps repo rate unchanged at 7.75%
RBI keeps reverse repo rate unchanged at 6%
RBI keeps CRR unchanged at 7.50%
There is no change in any of the rates. The much awaited repo rate has not been cut, it remains at 7.75%. The argument is what all of us expected: Elevated asset prices, expansionary monetary and liquidity conditions - basically pointing to the fact that money supply is at 23% against a target of 17-17.5%.
The big culprit, of course, being the accretion of Forex reserves and consequently higher than projected deposit growth. So, basically too much money in the system can always ignite inflation, and therefore a caution on that area.
Also the RBI Governor refers to elevated asset prices in a couple of places, and the potential rise in food and fuel prices globally. This combination is what seems to have won the day today, and kept the RBI from cutting any of the operational rates. The RBI goes on to point out that there is some moderation in industrial activity. But it says that in the months to come, you are going to see a modest figure because the base is high. It points to arguments that export slowdown and high fuel prices can all impact, but doesn’t seem to be entirely convinced of that argument. In fact, Dr Reddy, the Governor, meanders into smaller areas like they have to look at exploring the slowdown very carefully. It is probably because of sector specific reasons. It wonders why there is a slowdown in private consumption expenditure. I am myself wondering why the RBI should be wondering.
You have to call the stance as neutral. The document itself of the last policy was a bit hawkish. This time the document is not sounding so hawkish, except for pointing out to these inflation threats. The tone is overall definitely not as harsh as it was last quarter. But the policy stance itself is completely confusing. Most of the words are towards what we saw in the previous policy stance - the number of paragraphs has been crunched from four to three. But it doesn’t really give you an idea whether the RBI’s stance has changed. It seems to be in complete neutrality in terms of the policy stance. The moderation in industry that the RBI has noted in several parts is perhaps one idea of dovishness. But otherwise, there is no explicit dovishness. Using the word ‘dovishness’ is a bit difficult. I would just say that it is more neutral than what it was in the previous quarter. You cannot call it a hawkish document for sure.
One of the peculiar paragraphs in this monetary policy stance seemed to be almost an admonishing by the RBI Governor to the banks, pointing out if there is an expansionary liquidity conditions.
As the Governor points out - why haven’t deposit and lending rates fallen? He is asking, at some point time deposit rates are even higher than the repo rates and he is wondering why they have not fallen. He also goes on to say that if there is so much surplus liquidity; which there is - after all deposits have expanded above the projected trajectory - both aggregate deposits and M3 being high, why have banks not increased the credit offtake?
This is a little peculiar since on the previous occasion, he had said that he is uncomfortable with that kind of credit growth. This sentence is - despite comfortable liquidity conditions; banks have not expanded credit proportionately. Instead, banks have proposed to make excess investments in SLRs including MSS issuance. The other sentence is, effective interest rates on time deposits at the margin are currently ruling above the last repo rates. Apparently there has been little or no adverse impact on bank margins.
He goes on to wonder - expansionary liquidity conditions engineered by capital flows have not prompted banks to reduce deposit and lending rates, which have been maintained at elevated levels. So, this is a veiled attempt at asking banks to lower deposit and lending rates and perhaps left to themselves - bankers will be doing it when their high cost deposits decline. But this is peculiar; he has not cut rates but is wondering why banks have not cut rates.
RBI says:
Headline inflation picked up since December 2007
Liquidity management to be priority for policy
Inflation to go up even if fuel prices remain unchanged
Upside risks to inflation to increase going ahead
Flexibility to change reverse repo, repo rates
CRR unchanged on preview of current liquidity situation
Financial markets warrant careful monitoring on large fx flows
Emphasis on price stability, anchoring inflation
Retain inflation aim of 4-4.5% for FY08, 3% in medium-term
To maintain GDP growth target of 8.5% for FY08
Can't exclude likely Forex flows reversal on global sentiment
Tuesday, January 29, 2008
Sunday, January 27, 2008
Repo, Reverse Repo and RBI
CRR is cash reserve ratio which is portion of the deposits mobilised in a fortnight to be kept with RBI as a statutory requirement.
Repo is the rate at which RBI infuses liquidity through purchase of government securities while reverse repo is the process of absorption of liquidity from the system through sale of government papers . These are tools for open market operations.
Reserve Bank of India may keep interest rates unchanged in the monetary policy to be announced on Tuesday.
Inflation concerns and high money supply will remain the primary concern of the central bank, sources close to the development said.
According to the sources, inflation concerns and high money supply will remain the primary concern of RBI for at least a couple of months more. This means the central bank will wait at least till the next policy review in April before adopting a softer stance on rates.
However, they added that the cash reserve ratio (CRR) may be increased 25 basis points to curb liquidity following the rising interest rate differential between the US and India after the 75 basis point cut in the US Federal Reserve rate.
Sources close to the development said there was an internal view within RBI that the time is perhaps ripe for a 25 basis point cut in the repo rate, since the corridor between the repo and reverse repo has been quite high at 175 basis points as against the conventional 100 basis points.
This can be accompanied by a 25 basis point hike in CRR. This, a section within RBI felt, will help tighten liquidity without the cost of issuing market stabilisation bonds and treasury bills. At the same time it would signal a softer stance on interest rate.
With the cut in the US Federal Reserve rate and expectations of another 25-50 basis point reduction in the January 30 Open market committee meeting, this section felt that a repo rate cut is necessary to stem the deluge of foreign exchange inflows due to the interest rate arbitrage.
However, RBI is veering to the view that a status quo is necessary as inflation concerns still remain high.
Besides, Indian economy growth may not be as high as last year; and the forex inflows will be more evenly distributed across all Asian countries. Moreover, if the liquidity management becomes a problem, RBI has all the instruments at its disposal to step in whenever necessary.
There is in fact a liquidity surplus in the system with no substantial increase in credit pick-up and money supply is already ruling much higher at 21-22 per cent above RBI’s forecast of 17-17.5 per cent.
Currently, CRR is maintained at 7.5 per cent after six tranches of hikes since April 2007.
Repo is the rate at which RBI infuses liquidity through purchase of government securities while reverse repo is the process of absorption of liquidity from the system through sale of government papers . These are tools for open market operations.
Reserve Bank of India may keep interest rates unchanged in the monetary policy to be announced on Tuesday.
Inflation concerns and high money supply will remain the primary concern of the central bank, sources close to the development said.
According to the sources, inflation concerns and high money supply will remain the primary concern of RBI for at least a couple of months more. This means the central bank will wait at least till the next policy review in April before adopting a softer stance on rates.
However, they added that the cash reserve ratio (CRR) may be increased 25 basis points to curb liquidity following the rising interest rate differential between the US and India after the 75 basis point cut in the US Federal Reserve rate.
Sources close to the development said there was an internal view within RBI that the time is perhaps ripe for a 25 basis point cut in the repo rate, since the corridor between the repo and reverse repo has been quite high at 175 basis points as against the conventional 100 basis points.
This can be accompanied by a 25 basis point hike in CRR. This, a section within RBI felt, will help tighten liquidity without the cost of issuing market stabilisation bonds and treasury bills. At the same time it would signal a softer stance on interest rate.
With the cut in the US Federal Reserve rate and expectations of another 25-50 basis point reduction in the January 30 Open market committee meeting, this section felt that a repo rate cut is necessary to stem the deluge of foreign exchange inflows due to the interest rate arbitrage.
However, RBI is veering to the view that a status quo is necessary as inflation concerns still remain high.
Besides, Indian economy growth may not be as high as last year; and the forex inflows will be more evenly distributed across all Asian countries. Moreover, if the liquidity management becomes a problem, RBI has all the instruments at its disposal to step in whenever necessary.
There is in fact a liquidity surplus in the system with no substantial increase in credit pick-up and money supply is already ruling much higher at 21-22 per cent above RBI’s forecast of 17-17.5 per cent.
Currently, CRR is maintained at 7.5 per cent after six tranches of hikes since April 2007.
Monkey and Symonds
It seems that the "monkey" has come back to haunt India-Australian cricketing ties yet again.
An intruder, an Australian wearing a black monkey mask not only evaded so-called strict security surveillance on the ground but managed to reach the pitch before he was brought down by the security staff.
It happened in the post tea session when Andrew Symonds was batting on 30 with Brad Hogg in company. It came at the same time when Australia levelled India’s first innings total. Irfan Pathan was the bowler.
When the Indian left-arm seamer was asked about the intrusion, he joked about it saying, "I don’t know whether t was due to a bet or just a joke. It was a bit funny," he said.
Indian crowds and Team India, especially Harbhajan Singh, has been pilloried by Australian press and the team over the "monkey" issue. The press had picked on monkey chants when Australia toured India last October for the One-Day series.
The matter was turned into an issue by the Australian team with much help from touring reporters from Down Under, saying that it was racist and targetted at Andrew Symonds who is the only player of Afro-Caribbean origin.
Indian team manager Chetan Chauhan gave a measured response to the incident saying that, "it seems just as Indians back home treat it like a joke, so do Australians."
Channel Nine, the official broadcaster here, did not show images of the intruder. Interestingly, Australian reporters in the post match conference did not raise the issue with Pathan either.
Meanwhile, sources in the Indian team management say that they will bring this issue up during Harbhajan Singh’s appeal hearing scheduled for January 29. Judge Paul Hansen of New Zealand has arrived in Adelaide for the appeal hearing.
The Australian team had brought up incidents of monkey chants and racist abuse during the last tour when they went to India, especially the incidents during the Baroda and Mumbai One-Dayers
An intruder, an Australian wearing a black monkey mask not only evaded so-called strict security surveillance on the ground but managed to reach the pitch before he was brought down by the security staff.
It happened in the post tea session when Andrew Symonds was batting on 30 with Brad Hogg in company. It came at the same time when Australia levelled India’s first innings total. Irfan Pathan was the bowler.
When the Indian left-arm seamer was asked about the intrusion, he joked about it saying, "I don’t know whether t was due to a bet or just a joke. It was a bit funny," he said.
Indian crowds and Team India, especially Harbhajan Singh, has been pilloried by Australian press and the team over the "monkey" issue. The press had picked on monkey chants when Australia toured India last October for the One-Day series.
The matter was turned into an issue by the Australian team with much help from touring reporters from Down Under, saying that it was racist and targetted at Andrew Symonds who is the only player of Afro-Caribbean origin.
Indian team manager Chetan Chauhan gave a measured response to the incident saying that, "it seems just as Indians back home treat it like a joke, so do Australians."
Channel Nine, the official broadcaster here, did not show images of the intruder. Interestingly, Australian reporters in the post match conference did not raise the issue with Pathan either.
Meanwhile, sources in the Indian team management say that they will bring this issue up during Harbhajan Singh’s appeal hearing scheduled for January 29. Judge Paul Hansen of New Zealand has arrived in Adelaide for the appeal hearing.
The Australian team had brought up incidents of monkey chants and racist abuse during the last tour when they went to India, especially the incidents during the Baroda and Mumbai One-Dayers
Saturday, January 26, 2008
Stock Market Crash: Jan 2008...Important lessons learnt
A very goood post from Moneycontrol by none other than Udyan Mukherjee
"The thing about life is that one makes mistakes. Many mistakes were made in the second half of 2007 and those sins have to be washed away by blood, such is the way of financial markets. Some participants will go down under and never be able to get back to the market again but most will survive. The pain will linger for many months, maybe years but lessons have to be learnt. Every such debacle has lessons for us and the sooner we forget them the more we suffer.
The first lesson is not to let stock price performance become the sole reason for buying, a mistake which was made in abundance in the last 3 months. What couldn't be explained by fundamentals was credited to liquidity. The present lost all relevance as people chose to focus on the distant future, perhaps simply because the present could never justify those ticker prices; only a hazy dream of the future could. Traders and investors had no time for fundamental analysts, in many cases they were labelled "cribbing fools". Chartists became the most celebrated tribe on the street as only they could see and predict the one way run to glory for many of the hot stocks even as fundamental watchers cringed at valuations....till the music stopped. Don't get me wrong, charts do work in trending markets but once stock prices veer away completely from fundamental value, people need to get careful. But they never are. Now that the blinkers are off, people should ask themselves why stocks like RNRL, Ispat, RPL, Essar oil and Nagarjuna fertilisers have lost 50-70% of their value. It is simply because their stock prices had snapped all connection with underlying business fundamentals, earnings and value. Their stock prices became the only reasons for buying them which works for a while but not forever.
The other big lesson, one which should have been driven in earlier in May 2006, is the danger of overextending oneself in the futures market. The lure of stock futures is easy to understand. Put in some margin, take a big exposure on a fast moving stock, make a killing when prices shoot up. Repeat exercise. Just that people forgot that prices may also come down and at a pace which noone can even imagine, maybe their friendly stockbrokers forgot to tell them that part of the story. The result : unbridled speculation that ran into lakhs of crores, excesses that we are paying for today. Even this fall will not cure investors of their love for futures speculation but if at least some amount of caution is injected it would have been a worthwhile learning. Futures are not toys for amateurs, they are time bombs in the hands of inexpert and inexperienced traders, it's only a matter of when the fuse runs out.
The other learning which I hope will play out in the future, as it has in the past, is that it pays to be brave in times of panic such as these. If I was allowed to invest myself , which I am not, I would have no hesitation in deploying serious money into the market today, knowing fully well that prices may fall more tomorrow. And I would be standing there tomorrow to buy more of the same, till my money ran out. India is going to be a terrific stock market story for many years to come, even an intermediate bearish patch cannot shake that conviction of mine. At best, one will have to wait a bit for the returns to follow. That's alright. You are happy to put money in a bank FD and then wait for one full year to collect that measly 8%, aren't you? Then why does the stock market need to give you 20% every month? In the last one year, I haven't seen so many good stocks trade at such mouth watering levels. Forget trading, avoid the duds which were fuelled up by operators, just go out and buy those bluechips. They will deliver, even if there is a global market meltdown for a while, and if you are a bit patient you will be rewarded. But do remember January 2008, as history will repeat itself again in the future. Just that our memories tend to be too short and our greed too much"
"The thing about life is that one makes mistakes. Many mistakes were made in the second half of 2007 and those sins have to be washed away by blood, such is the way of financial markets. Some participants will go down under and never be able to get back to the market again but most will survive. The pain will linger for many months, maybe years but lessons have to be learnt. Every such debacle has lessons for us and the sooner we forget them the more we suffer.
The first lesson is not to let stock price performance become the sole reason for buying, a mistake which was made in abundance in the last 3 months. What couldn't be explained by fundamentals was credited to liquidity. The present lost all relevance as people chose to focus on the distant future, perhaps simply because the present could never justify those ticker prices; only a hazy dream of the future could. Traders and investors had no time for fundamental analysts, in many cases they were labelled "cribbing fools". Chartists became the most celebrated tribe on the street as only they could see and predict the one way run to glory for many of the hot stocks even as fundamental watchers cringed at valuations....till the music stopped. Don't get me wrong, charts do work in trending markets but once stock prices veer away completely from fundamental value, people need to get careful. But they never are. Now that the blinkers are off, people should ask themselves why stocks like RNRL, Ispat, RPL, Essar oil and Nagarjuna fertilisers have lost 50-70% of their value. It is simply because their stock prices had snapped all connection with underlying business fundamentals, earnings and value. Their stock prices became the only reasons for buying them which works for a while but not forever.
The other big lesson, one which should have been driven in earlier in May 2006, is the danger of overextending oneself in the futures market. The lure of stock futures is easy to understand. Put in some margin, take a big exposure on a fast moving stock, make a killing when prices shoot up. Repeat exercise. Just that people forgot that prices may also come down and at a pace which noone can even imagine, maybe their friendly stockbrokers forgot to tell them that part of the story. The result : unbridled speculation that ran into lakhs of crores, excesses that we are paying for today. Even this fall will not cure investors of their love for futures speculation but if at least some amount of caution is injected it would have been a worthwhile learning. Futures are not toys for amateurs, they are time bombs in the hands of inexpert and inexperienced traders, it's only a matter of when the fuse runs out.
The other learning which I hope will play out in the future, as it has in the past, is that it pays to be brave in times of panic such as these. If I was allowed to invest myself , which I am not, I would have no hesitation in deploying serious money into the market today, knowing fully well that prices may fall more tomorrow. And I would be standing there tomorrow to buy more of the same, till my money ran out. India is going to be a terrific stock market story for many years to come, even an intermediate bearish patch cannot shake that conviction of mine. At best, one will have to wait a bit for the returns to follow. That's alright. You are happy to put money in a bank FD and then wait for one full year to collect that measly 8%, aren't you? Then why does the stock market need to give you 20% every month? In the last one year, I haven't seen so many good stocks trade at such mouth watering levels. Forget trading, avoid the duds which were fuelled up by operators, just go out and buy those bluechips. They will deliver, even if there is a global market meltdown for a while, and if you are a bit patient you will be rewarded. But do remember January 2008, as history will repeat itself again in the future. Just that our memories tend to be too short and our greed too much"
Monday, January 21, 2008
Stock Market Crash and Me
It was a Chilly morning.Wifey asked me to hurry up and drop her 4 her training. My thoughts were fixed on how would i recover the 26000 loss in the stock market on friday..."Jaldi Karo"....and i was shaken...
I hurriedly got up and got ready...
Reached office in a hurry to beat the parking rush...reached just in time to get a parking...
Heard a few ppl discussing the reliance power IPO subsrciption levels in the lift..had avery good feeling that i applied in time....
reached my seat...powered my laptop...n the there it was....the losses had increased to 34000..could not muster the courage to sell....discussed it with a frnd...said forget it...n then there it was....i was having ..n news flashed that Sensex had dropped a whopping 1200 points....a sense of fear ran through my spine...and the constant question...how much i must be losing now..and i sense of regret..why did i not selll it earlier...
by the time markets closed...i was lsoing 60000...
A bad day @ office indeed!!!
I hurriedly got up and got ready...
Reached office in a hurry to beat the parking rush...reached just in time to get a parking...
Heard a few ppl discussing the reliance power IPO subsrciption levels in the lift..had avery good feeling that i applied in time....
reached my seat...powered my laptop...n the there it was....the losses had increased to 34000..could not muster the courage to sell....discussed it with a frnd...said forget it...n then there it was....i was having ..n news flashed that Sensex had dropped a whopping 1200 points....a sense of fear ran through my spine...and the constant question...how much i must be losing now..and i sense of regret..why did i not selll it earlier...
by the time markets closed...i was lsoing 60000...
A bad day @ office indeed!!!
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