A Reuters poll found 24 out of 25 economists expected the Reserve Bank of India (RBI) to raise the cash reserve ratio (CRR), the proportion of deposits banks needed to keep with the central bank, by up to 50 basis points (0.5%) in its January 29 policy review.
By the end of April, one analyst expected the total quantum of CRR increase at 150 basis points, while nine saw a total of 100 basis points rise and three projected the CRR to go up by 75 basis points.
Eight out of 25 analysts polled expected the RBI to raise its reverse repo and repo rates by 25 basis points each. Other analysts expected no change to policy rates.
Twenty-three analysts expected the central bank to raise both the reverse repo and repo rates by between 25 and 100 basis points by the end of April, when the RBI announces its annual review for the fiscal year 2010/11.
Seven out of eight who expected a rate increase in the January review, forecast a further rise in the reverse repo and repo rates by April.
Twelve expected a rise of at least 50 basis points in the reverse repo rate by April, while only 10 expected the repo rate to rise by the same quantum.
The central bank absorbs excess funds from the banking system at the reverse repo rate, which is at 3.25%, and lends money to banks at the repo rate, which is 4.75%.
Factors to watch
Industrial output grew 11.7% in November from a year earlier, as stimulus measures since October 2008 to overcome the global credit crunch supported domestic demand.
The widely watched wholesale price index (WPI) rose an annual 7.3% in December, its highest since November 2008 and accelerating from a 4.8% rise in November.
Food prices rose 16.81% in the 12 months to January 9, easing from nearly 20% in early December.
Market impact
Traders expect a CRR increase would have little impact on the bond market, as investors have mostly factored in at least a 25 basis points increase in banks' reserve requirement and steady interest rates.
Increases in both the CRR and interest rates could push bond yields up, and weigh on shares of banks as well as sectors such as auto and property on concerns loan demand may slow.
Source: ReutersCourtesy moneycontrol.com
Also check
Posts
No comments:
Post a Comment